Globalization, Technology, and the Skill Premium: A Quantitative Analysis

52 Pages Posted: 18 Oct 2010 Last revised: 23 Jun 2022

See all articles by Ariel T. Burstein

Ariel T. Burstein

University of California, Los Angeles (UCLA) - Department of Economics

Jonathan Vogel

UCLA; NBER

Date Written: October 2010

Abstract

We construct a model of international trade and multinational production (MP) to examine the impact of globalization on the skill premium in skill-abundant and skill-scarce countries. The key mechanisms in our framework arise from the interaction between three elements: cross-country differences in factor endowments and sectoral productivities, technological heterogeneity across producers within sectors, and skill-biased technology. Reductions in trade and/or MP costs induce a reallocation of resources towards a country's comparative advantage sector (increasing the skill premium in skill-abundant countries and reducing it in skill-scarce countries) and within sectors towards more productive and skill-intensive producers (increasing the skill premium in all countries).We parameterize the model to match salient features of the extent and composition of trade and MP between the U.S. and skill-abundant and skill-scarce countries in 2006. We show that a reduction in trade and MP costs, moving from autarky to 2006 levels of trade and MP, increases the skill premium by roughly 5% in skill-abundant and skill-scarce countries. We also show that the growth in US trade and MP between 1966 and 2006 accounts for 1/9th of the 24% rise in the US skill premium over this period. MP is at least as important as international trade in generating this rise in the skill premium.

Suggested Citation

Burstein, Ariel T. and Vogel, Jonathan, Globalization, Technology, and the Skill Premium: A Quantitative Analysis (October 2010). NBER Working Paper No. w16459, Available at SSRN: https://ssrn.com/abstract=1692522

Ariel T. Burstein (Contact Author)

University of California, Los Angeles (UCLA) - Department of Economics ( email )

Box 951477
Bunche Hall 8365
Los Angeles, CA 90095-1477
United States
310-206-6732 (Phone)
310-825-9528 (Fax)

Jonathan Vogel

UCLA ( email )

8283 Bunche Hall
Los Angeles, CA 90095-1477
United States

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
28
Abstract Views
487
PlumX Metrics