Variety-Skill Complementarity: A Simple Resolution of the Trade-Wage Inequality Anomaly

Yoshinori Kurokawa

Tsukuba Economics Working Papers from Faculty of Humanities and Social Sciences, University of Tsukuba

Abstract: The Stolper-Samuelson theorem predicts that the relative wage of high-skilled to low-skilled labor will increase in the high-skill abundant U.S. but decrease in low-skill abundant Mexico after trade liberalization, while it actually began to rise in both countries in the late 1980s. We present a simple resolution of this "trade-wage inequality anomaly" in a model of variety trade. Variety trade increases the variety of intermediate goods used by the final good. If the varieties and high-skilled labor are complements, the skill premium rises in both countries. This linking of imports of new foreign varieties?---the extensive margin?---to wage inequality is compatible with evidence. Our numerical examples illustrate that small amounts of variety trade can produce a signi?ficant increase in relative wage.

Date: 2009-03
New Economics Papers: this item is included in nep-dev and nep-lab
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Related works:
Journal Article: Variety-skill complementarity: a simple resolution of the trade-wage inequality anomaly (2011)
Working Paper: Trade and Variety-Skill Complementarity: A Simple Trade-Based Resolution of Wage Inequality Anomaly (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:tsu:tewpjp:2009-007

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