Trade, Wages and 'Superstars'
IGIER Working Paper n.140
27 Pages Posted: 22 Jan 1999
Date Written: November 1998
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: Suggested Citation