Abstract
We use a general equilibrium model of trade to show that technical improvement may indeed cause a fall in the wages of unskilled workers. Under some modest conditions, the wages of skilled workers may go down too.
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Notes
Without loss of generality, we assume that technical progress is limited to the importable sector. One could show that the implications of technical improvement in the exportable sector are the opposite.
This simplifying assumption states that capital does not impact the marginal productivity of unskilled labor. The assumption is not far from the real world observation as many studies point out this observation. It is argued that the recent increases in the stock of capital through the computer revolution had little or no impact on unskilled labor.
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We are grateful to the Editor and an anonymous referee for helpful comments on an earlier version of this paper. We are responsible for any possible remaining errors.
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Oladi, R., Beladi, H. Non-traded Goods, Technical Progress and Wages. Open Econ Rev 19, 507–515 (2008). https://doi.org/10.1007/s11079-007-9057-1
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DOI: https://doi.org/10.1007/s11079-007-9057-1