Since the 1980s, wage inequality has increased in many OECD (Organization for Economic Cooperation and Development) countries, with a shift in demand towards skilled labor. Most economists do not attribute this change to international trade, but Professor Vanessa Strauss-Kahn argues that it’s important to examine the problem from a different angle. Here, she analyzes the effect of globalization on inequality and develops a general equilibrium model of production and wage premia. This paper addresses the following questions: – When does vertical specialization (outsourcing) occur? – In which country and under which conditions does agglomeration take place? – How does globalization affect the wage premium in different locations? – By considering trade in intermediate inputs and firms’ location decisions can we reconciliate facts and theory?
Author: Vanessa Strauss-Kahn
Source: INSEAD Knowledge
Subjects: Economics, International
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