Chapter 12: Modelling the link between skill biases in technical change and wage divergence through labour market extensions of Krugman’s North–South model
12. Modelling the link between skill biases in technical change and wage divergence through labour market extensions of Krugman’s North–South model Adriaan van Zon, Mark Sanders and Joan Muysken 1. INTRODUCTION A growing problem in the OECD area over the recent past has been the position of low-skilled workers relative to their high-skilled counterparts. The employment and income perspectives of the former have deteriorated signiﬁcantly over the past two decades owing to a drop in the relative demand for their services. Economic theory has tried to come to grips with the empirical observation that the effects of this drop in low-skilled labour demand differ widely between Europe and the USA. In fact, there are two distinct empirical observations which led us to the problem we wish to address in this chapter. First of all, the OECD (1994) and several independent academic researchers (Brauer and Hickok, 1995) have observed that in the Anglo-Saxon parts of the world wages for low-skilled workers have deteriorated in relative but in some cases even in absolute terms. To explain this phenomenon economists have formed two hypotheses. The ﬁrst attributes the effect to the factor price equalizing effects of increased trade with low-wage countries (Leamer, 1994, 1995; Burtless, 1994; Lawrence and Slaughter, 1993). The second hypothesis emphasizes the possibility of technological change causing a divergence between the productivity of high- and low-skilled workers and thus causing a drop in relative demand for low-skilled labour, together with wage divergence in line with productivity. Some notable...
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