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James Markusen:Per Capita Income and the Demand for Skills

2018-11-12

Per Capita Income and the Demand for Skills 

 

Time:2:30pm - 4:00pm, Nov.12th, 2018

Venue:Room 359S, Overseas Exchange Center, Peking University

Speaker:James Markusen(Distinguished Professor, University of Colorado, Boulder)

 

Abstract:

Almost all of the literature about the growth of income inequality and the relationship between skilled and unskilled wages approaches the issue from the production side of general equilibrium (skill-biased technical change, international trade). Here, we add a role for income-dependent demand interacted with factor intensities in production. We explore how income growth and trade liberalization influence the demand for skilled labor when preferences are non-homothetic and income-elastic goods are more intensive in skilled labor, an empirical regularity documented in Caron, Fally and Markusen (2014). In one experiment, counterfactual simulations show that sector-neutral productivity growth, which generates shifts in consumption towards skill-intensive goods, leads to significant increases in the skill premium: in developing countries, a one percent increase in productivity leads to a 0.1 to 0.25 percent increase in the skill premium. In several countries, including China and India, simulations suggest that the historical growth experienced in the last 25 years may have led to an increase in the skill premium of more than 10%. In a second experiment, we show that trade cost reductions generate quantitatively very different outcomes once we account for non-homothetic preferences. These imply substantially less predicted net factor content of trade and allow for a shift in consumption patterns caused by trade-induced income growth. Overall, the negative effect of trade cost reductions on the skill premium predicted for developing countries under homothetic preferences (Stolper-Samuelson) is strongly mitigated, and sometimes reversed.

 

Speaker:

 

James Markusen is University Distinguished Professor at the University of Colorado, Boulder. Professor Markusen's principal interests are in the field of international trade. His research for the last 10 years has concentrated on the location, production, and welfare effects of large-scale firms and multinational corporations. More recently, he is working on showing how rising incomes lead to shifts toward consuming skilled-labor intensive goods and services, thus helping to explain a number of international trade and skilled-wage premium puzzles. He has published extensively in the top academic journals of the economics discipline, including American Economic Review, Quarterly Journal of Economics, Journal of Political Economy, Economic Journal, and Journal of International Economics. He is currently the Associate Editor and on the editorial boards for Journal of International Economic and was the Co-Editor from 1999 to 2002. Professor Markusen served as a researcher and advisor during the mid 1980's on the then-proposed US-Canada free-trade agreement, and in the early 1990's, he worked with Mexican economists on the proposed North American Free Trade Area (NAFTA). In 2001, he was awarded Jagdish Bhagwati Award for Best Article in the Journal of International Economics for the two-year period 1999-2000. Professor Markusen earned his BA and PhD degrees in Economics from Boston College.