Globalization and wage polarization

Cozzi, Guido; Impullitti, Giammario

Abstract

In the 1980s and 1990s, the US labour market experiences a remarkable polarization along with fast technological catch-up, as Europe and Japan improve their global innovation performance. Is foreign technological convergence an important source of wage polarization? To answer this question, we build a multi-country Schumpeterian growth model with heterogeneous workers, endogenous skill formation and occupational choice. We show that convergence produces polarization through business stealing and increasing competition in global innovation races. Quantitative analysis shows that these channels can be important sources of US polarization. Moreover, the model delivers predictions on the US wealth-income ratio consistent with empirical evidence.

Citation

Cozzi, G., & Impullitti, G. (in press). Globalization and wage polarization. Review of Economics and Statistics, 98(5), https://doi.org/10.1162/REST_a_00551

• Journal Article Type: Article
• Acceptance Date: Jul 18, 2015
• Online Publication Date: Nov 16, 2015
• Deposit Date: Jun 16, 2016
• Publicly Available Date: Jun 16, 2016
• Journal: Review of Economics and Statistics
• Print ISSN: 0034-6535
• Electronic ISSN: 1530-9142
• Publisher: Massachusetts Institute of Technology Press
• Peer Reviewed: Peer Reviewed
• Volume: 98
• Issue: 5
• DOI: https://doi.org/10.1162/REST_a_00551
• Keywords: wage polarization, heterogeneous workers, wealth-income ratio, endogenous technical change, international technology competition, personal service sector
• Public URL: https://nottingham-repository.worktribe.com/output/766547
• Publisher URL: http://www.mitpressjournals.org/doi/pdf/10.1162/REST_a_00551
• Contract Date: Jun 16, 2016