Assignment reversals: trade, skill allocation and wage inequality

Sampson, Thomas (2011) Assignment reversals: trade, skill allocation and wage inequality. CEP Discussion Papers (CEPDP1105). London School of Economics and Political Science. Centre for Economic Performance, London, UK.

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Abstract

Understanding the allocation of skilled labor across industries is necessary to explain inter-industry wage differences and the effect of trade on wages. This paper develops a multi-sector assignment model with both heterogeneous labor and a non-labor input in which high skill agents match with high input productivity sectors where they can best leverage their talent. When the ranking of sectors by input productivity differs across countries, their ranking by workforce skill also differs – this is an assignment reversal. In a two sector, two country model the existence of an assignment reversal implies that each country has a comparative advantage in its high skill sector. Consequently, trade integration causes both the relative wage of high skill workers, and wage inequality within the high skill sector, to increase in both countries. Using exogenous differences in capital productivity induced by a country’s proximity to major capital exporters the paper shows that international variation in the industry wage structure supports the existence of assignment reversals and is consistent with the model’s sorting predictions.

Item Type:	Monograph (Discussion Paper)
Official URL:	https://cep.lse.ac.uk/_new/publications/discussion...
Additional Information:	© 2011 The Author(s)
Divisions:	Economics
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HD Industries. Land use. Labor
JEL classification:	J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J30 - General L - Industrial Organization > L6 - Industry Studies: Manufacturing > L60 - General O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development > O30 - General
Date Deposited:	22 Feb 2024 09:39
Last Modified:	22 Feb 2024 09:39
URI:	http://eprints.lse.ac.uk/id/eprint/121773

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