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Trade, Wage Gaps, and Specific Human Capital Accumulation *
Author(s) -
Van Long Ngo,
Riezman Raymond,
Soubeyran Antoine
Publication year - 2007
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/j.1467-9396.2007.00674.x
Subject(s) - economics , welfare , wage , free trade , profitability index , negotiation , human capital , labour economics , liberalization , outcome (game theory) , international economics , market economy , microeconomics , finance , political science , law
We develop a new framework for the analysis of the impact of trade liberalization on the wage structure and on welfare. Our model focuses on the decision of workers to accumulate firm‐specific skills, by “on‐the‐job” training, knowing that this means their future wages will have to be negotiated, and that the outcome of negotiation will depend on the profitability prospect of firms operating in a new trading environment. We show that trade liberalization may reduce the welfare of a developing country because of its adverse effect on skill accumulation. We also explore the effects of trade liberalization on the wage gap between skilled and unskilled workers.