Trade, Wage Gaps, and Specific Human Capital Accumulation
29 Pages Posted: 6 May 2003
Date Written: April 2003
We develop a new framework for the analysis of the impact of trade liberalization on the wage structure. Our model focuses on the decision of workers to accumulate firm-specific skills, by "on-the-job" training, knowing that this means their future wages will have to be negotiated, and that the outcome of negotiation will depend on the profitability prospect of firms operating in a new trading environment. We show that trade liberalization may reduce the welfare of a developing country because of its adverse effect on skill accumulation. We also explore the effects of trade liberalization on the wage gap between skilled and unskilled workers.
Keywords: Wage Gap, Human Capital, Trade Liberalization
JEL Classification: F10, F16
Suggested Citation: Suggested Citation