NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Dynamic Globalization and Its Potentially Alarming Prospects for Low-Wage Workers

Hans Fehr, Sabine Jokisch, Laurence J. Kotlikoff

NBER Working Paper No. 14527
Issued in December 2008
NBER Program(s):Aging, Development of the American Economy, International Trade and Investment, Law and Economics, Monetary Economics, Public Economics, Productivity, Innovation, and Entrepreneurship

Will incomes of low and high skilled workers continue to diverge? Yes says our paper's dynamic, six-good, five-region -- U.S., Europe, N.E. Asia (Japan, Korea, Taiwan, Hong Kong), China, and India -- general equilibrium, life-cycle model.

The model predicts a near doubling of the ratio of high- to low-skilled wages over the century. Increasing wage inequality arises from a traditional source -- a rising worldwide relative supply of unskilled labor, reflecting Chinese and Indian productivity improvements. But China's and India's education policies matter. If successive Chinese and Indian cohorts become more skilled, major exacerbation of inequality will be precluded.

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Document Object Identifier (DOI): 10.3386/w14527

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