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Title: Trade, Technological Trade, and Wage Inequality

Citation Type: Miscellaneous

Publication Year: 2013

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Abstract: In the decade following the Mexico-US trade integration, the manufacturing skill premium rose by almost 60 percent in Mexico and by only 12 percent in the US. Standard trade theory predicts that when countries with different levels of skilled labor integrate the skill premium should fall - not rise - in the skill-scarce country. In this paper, I reconcile theory and data by building a model in which intermediate goods are produced using rented technology. After integration, producers in Mexico begin to rent technologies from the United States, which are more advanced and, hence more skill-intensive. This has two effects: The skill premium in Mexico rises due to adoption of the more advanced technology and the skill premium in the US rises due to increased investment in this technology, which is driven by the increased marginal return on technology arising from its adoption in Mexico. The mechanism is supported by industry-level evidence: Mexican industries which are integrated into the US supply chain have higher skill premia than their non-integrated counterparts. the calibrated model can account for about two-thirds of the increase in the skill premium in each country.

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Authors: Waddle, Andrea

Publisher: University of Minnesota

Data Collections: IPUMS CPS

Topics: Education, Labor Force and Occupational Structure

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