The Effects of Globalization on Wage Inequality: New Insights from a Dynamic Trade Model with Heterogeneous Firms

Arbeitspapier

Fears of increasing inequality play a dominant role in current debates on how globalization is affecting our economies. After a brief review of recent trends in wage inequality, this policy paper presents new insights on the dynamic effect of trade liberalization on wage inequality. In the context of a dynamic trade model with costly labour mobility (Lechthaler and Mileva, 2013), we show that the effect of trade liberalization on wage inequality depends on i) the time horizon considered, ii) the degree of worker mobility, and iii) the degree of trade liberalization (partial/full). In the short-run, observed increases in wage inequality are driven by an increase in inter-sectoral wage inequality, while in the long run, wage inequality is driven by an increase in the skill premium.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: WWWforEurope Working Paper ; No. 49

Classification and Topics

• Classification: Wirtschaft ; Trade: General ; International Factor Movements and International Business: General ; Wages, Compensation, and Labor Costs: General ; Mobility, Unemployment, Vacancies, and Immigrant Workers: General
• Subject: Challenges for welfare system ; globalisation ; labour markets ; macroeconomic disequilibria

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Mileva, Mariya ; Braun, Sebastian ; Lechthaler, Wolfgang
• Event: Veröffentlichung
• (who): WWWforEurope
• (where): Vienna
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/125704
• Last update: 10.03.2025, 11:45 AM CET