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Labour Mobility, Capital-Skill Complementarity and the Redistributive Effects of Trade Integration

CESPRI Working Paper No. 188

25 Pages Posted: 23 Jul 2007  

Michele Di Maio

University of Naples Parthenope

Carlo Devillanova

Bocconi University - Department of Policy Analysis and Public Management

Pietro Vertova

University of Siena - Department of Economics

Date Written: November 2006

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.

Keywords: Capital-Skill Complementarity, Intersectoral Labour Mobility, Wage Inequality, Trade Integration

JEL Classification: E24, J31, R23

Suggested Citation

Di Maio, Michele and Devillanova, Carlo and Vertova, Pietro, Labour Mobility, Capital-Skill Complementarity and the Redistributive Effects of Trade Integration (November 2006). CESPRI Working Paper No. 188. Available at SSRN: https://ssrn.com/abstract=1002364 or http://dx.doi.org/10.2139/ssrn.1002364

Michele Di Maio (Contact Author)

University of Naples Parthenope ( email )

via Medina 40
Naples, 80133
Italy

HOME PAGE: http://sites.google.com/site/micdimaio/micheledimaio

Carlo Devillanova

Bocconi University - Department of Policy Analysis and Public Management ( email )

Via Roentgen 1
Milan, 20136
Italy

Pietro Vertova

University of Siena - Department of Economics ( email )

Piazza S. Francesco, 7
Siena, I-53100
Italy

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