Trade impacts on skill formation: welfare improvements accompanied by rises in inequality

No 07-12, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

Abstract: In this paper, we focus on the skill formation when considering the trade impacts on labor markets. Although workers are identical as unskilled labor, they differ in their productivity as skilled. Workers become skilled by incurring the training costs. Introducing the above settings into a trade model with monopolistic competition, we show that trade opening enhances skill formation. This is because trade enriches the varieties of differentiated goods and raises the utility of a worker for a given income. This effect works stronger for the skilled than for the unskilled although it makes all agents better off, leading to higher skill formation. However, it may be accompanied by rises in the real wage disparity between skilled and unskilled workers and by rises in the skilled wage inequality. Finally, we examine the possible effects of foreign direct investment on the labor market structure as well.

Keywords: trade; skill formation; monopolistic competition; wage inequality; FDI (search for similar items in EconPapers)
JEL-codes: F12 F16 F23 J24 J31 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2007-04
New Economics Papers: this item is included in nep-int and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:osk:wpaper:0712

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