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GTAP Resource #3490

"Wage inequality in trade-in-tasks models"
by Rojas-Romagosa, Hugo

Recent trade-in-tasks models suggest that relative low-skill wages (in rich
high-skill abundant countries) may increase when low-skill tasks are offshored.
However, using numerical simulations of these models we find that wage inequality
is increasing for almost all endowment combinations (i.e. relative country
sizes). The only exception is when the country is relatively small and offshoring
levels are moderate or high. These results are robust to different offshoring
cost parameters, factor production shares, elasticities of substitution, industryspecific
offshoring costs, and different offshoring stages. Thus, the example
portrayed in Grossman and Rossi-Hansberg (2008), where offshoring decreases
wage inequality in an international price taking country with non-specialization
in production, is indeed a special case. We also find, as in Markusen (2010) and
Baldwin and Robert-Nicoud (2010), that offshoring can improve or decrease
welfare in rich countries conditional on terms-of-trade effects. For relatively
poor low-skill abundant countries, we find that offshoring is always welfare improving.
However, the wage inequality effects of offshoring in these countries
are conditional on the relative share of low-skill workers and the particular offshoring
stage. Finally, we find that the GRH model can also account for wage
polarization. This is done by expanding the model to have three skill-types and
assuming that only medium-skill tasks are offshored. Moreover, when H-task
offshoring is also possible, we find that overall wage inequality is decreasing
with respect to the case when only M-task offshoring occurred.

Resource Details (Export Citation) GTAP Keywords
Category: 2011 Conference Paper
Status: Published
By/In: Presented at the 14th Annual Conference on Global Economic Analysis, Venice, Italy
Date: 2010
Version: 7-Feb-2011
Created: Rojas-Romagosa, H. (3/15/2011)
Updated: Rojas-Romagosa, H. (3/15/2011)
Visits: 1,136
- Foreign direct investment
- Labor market issues

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