Author(s)
Ferdinando Monte

Wage ratios between different percentiles of the wage distribution have moved in parallel and then diverged in the U.S. in the last 50 years. In this paper, I study the theoretical response of wage ratios to skill-biased technical change and trade integration. I build a simple model of heterogeneous technology and heterogeneous workers that features complementarities between the quality of ideas and abilities. I show that changes to the skill bias of technology and to trade costs can both reproduce the observed pattern since (i) they have similar asymmetric effects on productive vs. unproductive firms, and (ii) positive assortative matching in the labor market transmits this asymmetry across high and low skill workers. Focusing on the different channels through which skill-biased technical change and trade integration operate suggests ways to disentangle the magnitude of each.

Publication Type
Article
Journal
Journal of International Economics
Volume
83
Issue Number
2
Pages
202-218
Keywords
intra-industry trade
skill-biased technical change
local change in inequality
intra-firm rent distribution