Short and Long Run Decomposition of OECD Wage Inequality Changes

Terence Edwards and John Whalley

No 72, Royal Economic Society Annual Conference 2003 from Royal Economic Society

Abstract: This paper focuses on the decomposition of increased wage inequality in OECD countries into the component factors of trade surges in low wage products and technological change. It argues that if the observed wage inequality response to price and technology shocks represents a short run response in which factors and output have not adjusted fully across industries, then decomposition analysis is substantially altered relative to a long-run factors mobile world. This applies either when one type of labour has mobility costs or where there is an additional, sectorally immobile factor. Only small departures from the fully mobile model can greatly change decompositions. Previous general equilibrium based studies have assumed a long-run full mobility response, when this may not be the case, and may consequently have drawn incorrect conclusions.

Keywords: Trade; wages; technology; inequality. (search for similar items in EconPapers)
JEL-codes: C68 F16 J31 (search for similar items in EconPapers)
Date: 2003-06-04
New Economics Papers: this item is included in nep-eec and nep-lab
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Working Paper: Short and Long Run Decompositions of OECD Wage Inequality Changes (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:ecj:ac2003:72

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