Chapter 11: Determinants of sectoral average wage and employment growth rates in a specific factors model with production externalities and international capital movements
11. Determinants of sectoral average wage and employment growth rates in a speciﬁc factors model with production externalities and international capital movements Ivo De Loo and Thomas Ziesemer1 1. INTRODUCTION Sectoral wages are the average of the wages for skilled and unskilled labour. Explaining their development has recently led to some controversies (see Freeman, 1995). The major problems discussed are why wages for skilled and unskilled labour diverge in the USA and why unemployment has been heavily concentrated on low-skilled workers in Europe. These shifts can also be observed in newly industrialized countries (NICs) (see Richardson, 1995). The wage determination question, however, is of broader interest. Many economists using closed or open economy growth models would explain wage growth mainly as a consequence of technical progress. Labour market economists would tend to emphasize (sectoral) supply and demand with little weight on international aspects (see Richardson, 1995). Trade economists would tend to ignore the supply of labour when using the Stolper– Samuelson theorem. However, in a multisectoral world of international trade and capital movements it is tempting to take a broader perspective. Consequently, one may ask the question, what is the relative importance of the major determinants of (average) wage growth and employment – international trade or factor movements, technological change or labour market developments – once one integrates all of them into one framework? In this chapter we try to answer this question with regard to the USA and six European countries (where wage inequality seemingly has changed much less than...
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