Trade, Wages and 'Superstars'

IGIER Working Paper n.140

27 Pages Posted: 22 Jan 1999

See all articles by Paolo Manasse

Paolo Manasse

Università degli Studi di Bologna - Department of Economics; IGIER, Bocconi University; International Monetary Fund (IMF) - Fiscal Affairs Department

Alessandro Turrini

European Commission; Centre for Economic Policy Research (CEPR)

Date Written: November 1998

Abstract

We study the effects "globalization" on wage inequality. Our "global" economy resembles Rosen (1981) "Superstars" economy, where a) innovations in production and communication technologies enable suppliers to reach a larger mass of consumers and to improve the (perceived) quality of their products and b) trade barriers fall. When transport costs fall, income is redistributed away from the non-exporting to the exporting sector of the economy. As the former turns out to employ workers of higher skill and pay, the effect is to raise wage inequality. Whether the least skilled are stand to lose or gain from improved production or communication technologies, in contrast, depends on whether technology is skill-complement or substitute. The model gives an intuitive explanation for the empirical regularities that skill intensity, market size and wages tend to be positively associated to exporting activity, across sectors and plants.

JEL Classification: F12, F16, J31

Suggested Citation

Manasse, Paolo and Turrini, Alessandro, Trade, Wages and 'Superstars' (November 1998). IGIER Working Paper n.140, Available at SSRN: https://ssrn.com/abstract=140136 or http://dx.doi.org/10.2139/ssrn.140136

Paolo Manasse (Contact Author)

Università degli Studi di Bologna - Department of Economics ( email )

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IGIER, Bocconi University

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International Monetary Fund (IMF) - Fiscal Affairs Department ( email )

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Alessandro Turrini

European Commission ( email )

Office BU-10/113
B-1049 Brussels
Belgium
+32 2 299 5072 (Phone)
+32 2 299 3505 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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