Multi-dimensional skills and matching: implications for international trade and wage inequality

Chihiro Inaba ()
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Chihiro Inaba: Department of Economics, Kobe University

No 1521, Discussion Papers from Graduate School of Economics, Kobe University

Abstract: Individuals have various skills and abilities. The amount of each skill or ability is heterogeneous among individuals, and these individuals work in jobs by exerting these skills and abilities. Firms also have demands for various skill and abilities dependent on the characteristics of its industry. Considering these multi-dimensional skill sets, it can be difficult to accurately match a worker's skill set with a firm's demand. Consequently, a mismatch of the skill set between workers and firms can occur, and may reduce worker wage income and firm productivity. This mismatch generates both inter- and intra- industry wage inequalities. This study considers how this skill mismatch affects the structure of production, wage inequalities, and international trade. I assume a two-dimensional skill set that is distributed among the workers by a normal probability distribution. I also assume a two-country economy with two industries per country. Cross-country differences in skill distribution can create differences in the structure of production and can be a source of international trade. When international trade commences, a portion of the workers employed in an importing industry will move to an exporting industry since they can earn a higher wage income than by remaining in the importing industry. However, the moving workers who are matched with less appropriate firms may suffer from a lower wage income than under autarky conditions.

Keywords: Multi-dimensional skills; International trade; Wage inequality (search for similar items in EconPapers)
Pages: 20 pages
Date: 2015-05
New Economics Papers: this item is included in nep-int
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