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Skill Bias, Trade, and Wage Dispersion

Monte, Ferdinando (2009): Skill Bias, Trade, and Wage Dispersion.

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Abstract

Wage ratios across different percentiles of the distribution have moved in parallel and then diverged in the U.S. in the last 50 years. I build a simple model of heterogeneous technology and workers that features complementarities in production and love-for-variety in consumption and identify the macro-, talent- and individual-specific components of the wage function. I build the theoretical counterparts of the observed wage ratios, and show that both skill-biased technical change and trade between identical countries can reproduce the observed pattern of wage dispersion. This fact arises from qualitatively similar local responses of the marginal vs. the total price of skills. I argue that intra-firm rent distribution can be used to disentangle these causes.

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