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Assignment reversals : trade, skill allocation and wage inequality

Sampson, Thomas (2016) Assignment reversals : trade, skill allocation and wage inequality. Journal of Economic Theory, 163. pp. 365-409. ISSN 0022-0531

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Identification Number: 10.1016/j.jet.2016.02.001

Abstract

The allocation of skilled labor across industries shapes inter-industry wage differences and wage inequality. This paper shows the ranking of industries by workforce skill differs between developed and developing countries and develops a multi-sector assignment model to understand the causes and consequences of this fact. Heterogeneous agents leverage their ability through their span of control over an homogeneous input. In equilibrium, higher skill agents sort into sectors where the cost per efficiency unit of input is lower. Consequently, skill allocation is endogenous to country-sector specific variation in input productivity and costs and when the ranking of sectors by effective input costs differs across countries there is an assignment reversal. Assignment reversals between North and South have novel implications for how trade affects wages because they imply the Stolper-Samuelson theorem does not hold. Instead, each country has a comparative advantage in its high skill sector and output trade integration causes the relative wage of high skill workers, and wage inequality within the high skill sector, to increase in both countries

Item Type: Article
Official URL: https://www.elsevier.com/
Additional Information: © 2016 Elsevier
Divisions: Centre for Economic Performance
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HF Commerce
JEL classification: F - International Economics > F1 - Trade > F11 - Neoclassical Models of Trade
F - International Economics > F1 - Trade > F16 - Trade and Labor Market Interactions
J - Labor and Demographic Economics > J2 - Time Allocation, Work Behavior, and Employment Determination and Creation; Human Capital; Retirement > J24 - Human Capital; Skills; Occupational Choice; Labor Productivity
J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc.
Sets: Research centres and groups > Centre for Economic Performance (CEP)
Date Deposited: 19 Feb 2016 15:14
Last Modified: 20 Jul 2019 02:12
URI: http://eprints.lse.ac.uk/id/eprint/65429

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