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Labour Mobility, Capital-Skill Complementarity and the Redistributive Effects of Trade IntegrationMichele Di MaioUniversity of Naples Parthenope Carlo DevillanovaBocconi University - Department of Policy Analysis and Public Management Pietro VertovaUniversity of Siena - Department of Economics November 2006 CESPRI Working Paper No. 188 Abstract: This paper addresses the role of mobility costs in shaping the effects of trade integration on wage inequality and welfare. We present a three-factor, two-sector model in which the production technology exhibits capital-skill complementarity and the cost of moving across sectors differs between unskilled and skilled workers. We consider a proportional tax on skilled workers' wage that is used to finance a re-training program to reduce the mobility costs of unskilled workers. We show that if the training program is sufficiently effective, a positive tax rate can both reduce wage inequalities and reinforce the welfare-enhancing effects of trade integration. In addition we show that, even when the public programme entails some welfare losses, it can make trade integration Pareto superior with respect to autarky.
Number of Pages in PDF File: 25 Keywords: Capital-Skill Complementarity, Intersectoral Labour Mobility, Wage Inequality, Trade Integration JEL Classification: E24, J31, R23 working papers seriesDate posted: July 23, 2007Suggested CitationContact Information
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