Skill Dynamics, Globalisation and Welfare (original) (raw)

Globalization, Skill Dynamics, Inequality and Welfare

We analyze the impact of globalization upon education and inequality in advanced countries (the North) and upon the world welfare. We build a simple two-goods North-South intergenerational model with human capital formation and in which globalization consists of an increase in the size of the South. The model generates a continuum of possible steady states, one of which is optimal in terms of world welfare. The skill dynamics can thus produce sub-optimal states. Globalization causes an enlargement of the set of potentially sub-optimal situations and can cause the world to shift from an optimal to a sub-optimal state. Its impacts on the skill endowment and inequality depend on the intensity of the globalization shock and on the elasticity of substitution between goods. In addition, globalization produces rather different impacts upon the generation in work and upon the following generations in terms of income and inequality. Finally, there is a threshold value of the skill endowment under which inequality is lower after than before the globalization shock, and above which inequality is higher.

Skill Dynamics, Inequality and Social Policies

2006 International Conference on Management Science and Engineering, 2006

We show that skills dynamics normally results in a sub-optimal situation involving income per capita within a model where the parents make the decisions relating to their children's education. This derives from an under-education trap that is endogenously generated.

Phases of Globalization, Wages and Inequality

Open Economies Review, 2019

To analyse the globalization-wages-inequality relationship, we extend the North-South Heckscher-Ohlin-Samuelson (HOS) model by assuming (i) that the size of the South (emerging countries) increases over time, (ii) that the North (advanced countries) and the South have very different factor endowments, (iii) several northern and southern countries with different skill endowments, and (iv) North-South technological differences, productivity catching up and technological transfers. The model generates three phases of globalization, corresponding to different production patterns and to specific changes in inequality in the North and in the South. In the North, inequality continuously increases and unskilled workers purchasing power continuously decreases during the first phase of globalization, and inequality diverges across countries. In the South, very different profiles in terms of inequality dynamics are possible, depending on the country’s skill endowment and on the its technological gap with the North. Unlike the traditional North-South HOS approach, the model’s predictions fit with observed facts.

A simple model of globalization, schooling and skill acquisition

European Economic Review, 2014

We develop a model of schooling and skill acquisition, highlighting informational asymmetries that distort the incentives to educate. A key feature of our model is that education acts simultaneously as a signaling device and as a method for workers to enhance their productivity. We show that when firms can only imperfectly screen workers, the result is an economy in which too many workers purchase schooling and too few workers devote sufficient effort to their coursework to qualify for the high skill labor pool. We then examine how greater openness to international markets alters the skill mix of the domestic workforce and show that greater openness usually eases one labor market distortion while making the other distortion worse. Globalization impacts educational behavior and labor market outcomes differently as the extent of firms engaged in international markets varies, and affects wage inequality both within and across educational groups.

Stages of Globalization, Inequality and Unemployment

To analyse the impacts of globalization upon inequality and unemployment in both advanced and emerging countries, we build a North-South HOS model with efficiency wages based on relative deprivation. Globalization is characterised by the South growing in size and significant differences in skill endowments between the two areas. We generate three stages of globalization depending on the size of the South and showing substantial divergences in terms of inequality, unemployment and productivity. The North is characterised by growing inequality and unemployment and by a decrease in productivity at the early stages of globalization. The South shows a decrease in inequality and unemployment at the first stage of globalization and growing inequality and/or unemployment at the later stage.

Globalization, Employment, and Income: Analyzing the Adjustment Process

In this paper we construct and analyze a general equilibrium trade model that explicitly accounts for the dynamic aspects of labor market adjustment that occur when trade is liberalized. We show how empirically observable parameters of the labor market determine the rate at which labor is released from the contracting sector and is absorbed into the expanding sector and therefore influence the magnitude and extent of the losses associated with trade reform. We also show that the economy may overshoot the new steady state during adjustment and that the length of the adjustment process is likely to be non-trivial. Outline 1. Introduction 2. The Model 3. Gradual Adjustment Following Trade Reform 4. The Welfare Impact of Trade Reform 5. The Bhagwati-Dehejia Thesis

Short and Long Run Effects of the Impact of Skill-Biased Technological Change on Income Inequality

We draw on a dynamical two-sector model and on a calibration exercise to study the impact of a skill-biased technological shock on the growth path and income distribution of a developing economy. The model builds on the theoretical framework developed by and on the idea of localised technological change with sector -level increasing returns to scale. We find that a scenario of catching-up to the high-growth steady state is predictable for those economies starting off with a high enough endowment of skilled workforce. Dur ing the transition phase, if the skill upgrade process for the workforce is relatively slow, the typical inverse-U Kuznets pattern emerges for income inequality in the long run. Small-scale Kuznets curves, driven by sectoral business cycles, may also be de tected in the short run. Conversely, economies initially suffering from significant skill shortages remain trapped in a low-growth steady state. Although the long-term trend is one of decreasing inequality, small-scale Kuznets curves may be detected even i n this case, which may cause problems of observational equivalence between the two scenarios for the policy-maker. The underlying factors of inequality, and the evolution of a more comprehensive measure of inequality than the one normally used, are also analysed. JEL classification numbers: O33, O41. and seminars in Southampton, Trento and Warwick universities for their comments. Usual disclaimers apply.

Globalization and the Inequality-Unemployment Tradeoff

Review of International Economics, 2010

Over the last 20 years, advanced economies have experienced an "unemployment versus inequality" tradeoff that is critically uneven across countries. To explain this, we propose an extended HOS model in which: the factors are skilled and unskilled labor; there is a continuum of goods; the world comprises two North countries (one egalitarian and one nonegalitarian) and the South; there is no factor price equalization; globalization consists in the South cornering a growing share of world production. In the North, globalization entails an inequality-unemployment tradeoff and the adjustment to globalization is more painful for the country that was initially inequality-oriented.

Globalization and Inequality: Where Do We Stand?

SSRN Electronic Journal, 2012

To analyse the globalization-inequality relationship, we extend the North-South HOS model by assuming (i) that the size of the South (emerging countries) increases over time and that the North (advanced countries) and the South never stand simultaneously inside the diversification cone, (ii) several northern and southern countries with different skill endowments, and (iii) North-South technological differences, productivity catching up and technological transfers. The model generates three phases of globalization, corresponding to different production patterns and to specific changes in inequality in the North and in the South. In the North, inequality continuously increases and unskilled workers purchasing power continuously decreases during the first phase of globalization, and inequality diverges across countries. In the South, very different profiles in terms of inequality dynamics are possible, depending on the country's skill endowment and on the its technological gap with the North. Unlike the traditional North-South HOS approach, the model predictions are consistent with observed facts.

Globalization and the Labor Market

The World Bank Research Observer, 2003

Does globalization affect labor market outcomes? Can labor market policies mitigate or offset the effects? Would these policies have important side effects on efficiency? This article addresses these questions through an analytical survey of the literature, including several studies under preparation. Some of the studies use new crosscountry databases of wages and other labor market indicators. Although all the answers should be considered tentative, some patterns emerge. Different aspects of globalization have different consequences. In the short run wages fall with openness to trade and rise with foreign direct investment. But after a few years the effect of trade on wages becomes positive. Foreign direct investment also increases (substantially) the returns to education. Social protection programs are effective in reducing inequality. Minimum wages, public sector employment, and core labor standards are not. Between these two extremes, collective bargaining works mainly for the middle class. Social protection programs do not adversely affect efficiency, but high public sector employment and trade union membership are associated with weaker performance in the context of adjustment. Integration with world markets bears the promise of prosperity for developing and transition economies, but it could also be a source of increased hardship. In principle, the unleashing of market forces associated with globalization should increase productivity and possibly economic growth. But many fear that the pendulum will swing too far toward efficiency, to the detriment of equity. Low wages and limited workers' rights could be necessary to attract foreign investment and increase export market shares, and these would be to the disadvantage of workers as a group. Moreover, inequality among workers could increase if greater economic integration benefits those with the skills needed to adjust to the new technologies and organizational structures, while the rest are left behind. These are the fears that lie behind such popular concepts as the "race to the bottom" and the "digital divide." This pessimistic view contrasts sharply with predictions by economists. One of the most widely used international trade models suggests that lower tariffs and transport