Labor Specialization and the Impact of International Trade on the Skill Premium
Year: 2013
Type: preprint
Abstract: This paper is concerned about addressing a question that has become critical in international trade, during the past three decades: What factors explain the worldwide increase in skill premiums following international trade integration and increasingly globalized economies? I propose a new theory to address this question through the lens of firm organization and labor specialization. In this model, I show how trade liberalization will result in reallocation of high skilled workers within an industry towards more productive firms and exporters. Specifically, reducing trade costs induces new exporters to choose a higher degree of labor specialization within high-skilled or low-skilled workers, to reduce their marginal costs, and to evolve into more skill-intensive entities. I further demonstrate how these internal organizational changes directly affect aggregate skill intensity and the skill premium in a general equilibrium setting. Lastly, I calibrate this model to Mexican data to quantify the rise in the skill premium in the period of 1985-1993.
Source: SSRN Electronic Journal
Authors: Madani Zadeh, Seyed Ali
Institution: Sharif University of Technology
Language: English
Topic: Global trade and economics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2291898978