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Labour Mobility And The Redistributive Effects Of Trade Integration, Carlo Devillanova, Michele Di Maio, Pietro Vertova

Michele Di Maio

This paper addresses the role of mobility costs in shaping the effects of trade integration on wage inequality and welfare. We present a three-factor, two-sector model in which the production technology exhibits capital-skill complementarity and the cost of moving across sectors differs between unskilled and skilled workers. Results show that trade integration increases aggregate welfare, but it also raises wage inequality, both within and across skill categories. We also model a public re-training program, financed by a proportional tax levied on skilled workers, which reduces the mobility cost of unskilled workers. We show that even if the re-training programme entails …