Global Sourcing and Relative Wages with A Nontradable Good

Transcription

1 Jurnal f Ecnmic Integratin 7(4), December 2002; Glbal Surcing and Relative Wages with A Nntradable Gd Yng-Yil Chi Hansung University Abstract In this paper I intrduce a new cncept f a glbal surcing ecnmy and then investigate the effects f glbal surcing n relative wages in a general equilibrium mdel. Frm the mdel I derive the theretical relative wage equatins that shw different predictins cmpared with the existing utsurcing literature. Glbal surcing has a negative assciatin with the relative wage f skilled labr t less skilled labr within tradable industry, while it is psitively assciated with the relative wage f skilled labr t less skilled labr within nn-tradable industry. This result is cntrasted with the ntin that utsurcing is psitively crrelated with the relative demand fr skilled labr. Anther finding is that the size f the share f mbile labr used t prduce nn-traded gds plays a key rle in deciding the magnitude f glbal surcing effect n the wage inequality within nntradable industry and hence the verall wage inequality. JEL Classificatin: F6 Key Wrds: Glbal Surcing, Relative Wages, Ecnmies f Scale, Nntradable Industry I. Intrductin As the cmpetitive pressures f the glbal ecnmy increase thrugh the 990s, an increasing number f firms are cmbining dmestic and internatinal surcing t win in glbal markets. Bzarth et al. (998) define this practice as glbal surcing. Thus, a glbal surcing ecnmy is emerging as a new cncept in *Crrespnding address: Yng-Yil Chi, Prfessr, Dept. f Internatinal Trade, Hansung University, Samsun-Dng Sengbuk-Gu Seul Krea address: yychi8@unitel.c.kr 2002-Center fr Internatinal Ecnmics, Sejng Institutin, All Rights Reserved.

2 Glbal Surcing and Relative Wages with a Nntradable Gd 7 cntrast t the traditinal cncept f a small pen ecnmy versus a large pen ecnmy. With greater glbal surcing, supply chain linkages between firms becme mre gegraphically dispersed. This change has affected the structure f demand fr labr, because glbal surcing nt nly shifts labr demand acrss industries, but als des it within industries. It implies imprtant distributinal cnsequences, thugh there is little research examining the link between glbal surcing and relative wages. Hwever, t explain the wage divergence between mre-skilled wrkers and less-skilled wrkers in the advanced ecnmies, a few papers use utsurcing cncept. Feenstra and Hansn (996, 999) explre whether utsurcing has cntributed t an increase in relative demand fr skilled labr. They measure utsurcing as the share f imprted intermediate inputs in the ttal purchase f nn-energy materials, and use the nn-prductin-wrkers share f the industry wage bill t measure the relative demand fr skilled labr. Feenstra and Hansn (996) cnclude frm their regressins that utsurcing can accunt fr percent f the increase in the nn-prductin wage share ccurring in the 980s. Hwever, Slaughter and Swagel (997) interpret that Feenstra and Hansn (996) use the share f inputs t prductin estimated t cme frm abrad as the extent f utsurcing prductin activity t lw-wage cuntries by prxy and argue they d nt distinguish the imprted intermediate gds as cming frm either develping r advanced ecnmies. On the ther hand, as multinatinal firms have established and/r expanded verseas affiliates, Krugman (995) explains this trend by saying that it has prved pssible t find expanded niches fr labr intensive prductin by slicing up the prductin f gds traditinally viewed as skill-, capital-, r technlgy-intensive and putting the labr-intensive slices in lw-wage lcatins. Slaughter (995) shws that the utsurcing f prductin can generate the within-industry demand shifts twards skilled labr. He des nt cnsider the Nike mdel f arms-length utsurcing where prducts are assembled by independent cntractrs rather than by Nike affiliates, but defines utsurcing t include nly intra-firm activity f multinatinals and their direct affiliates. He als estimates the factr price elasticity f demand between parent and affiliate labr t test whether these firms substitute heavily between labrs in the tw lcatins. The results indicate that hme and freign labr are at best weak substitutes and in fact might be cmplements. Hwever, thrugh the evidence frm Mexics maquiladras, Feenstra and Hansn (997) cntend that grwth in freign direct investment is

3 72 Yng-Yil Chi psitively crrelated with the relative demand fr skilled labr. This research is very valuable, but it des nt prvide a thery f glbal surcing n intraindustry relative wage and interindustry relative wage in a general equilibrium framewrk. Als, the existing literatures in the area are fcusing nly n the utsurcing activity f advanced ecnmies mtivated by lw-wage utilizatin, and hence they disregard the phenmenn that a grwing number f firms in dmestically wned manufacturing base is cmbining dmestic and internatinal parts. Therefre, in this paper, I try t build a general equilibrium mdel that synthesizes the link between glbal surcing and relative wages. Glbal surcing is defined as net imprts f intermediate gds relative t net exprts f final gds. Thus, glbal surcing here is a mre general cncept than that f utsurcing, nt nly because it des nt have t distinguish the imprted intermediate gds as cming frm either develping r develped ecnmies, but als because it des nt have t d with whether the activities are kept within the firm. S, this mdel can prvide a thery cnsistent with Slaughter (2000) s indicatin that prductin transfer des nt necessarily increase (and may even decrease) the relative wage fr skilled labr. The mdel als differs frm previus wrks in tw ther aspects. First, I can derive a direct relatinship between relative wages and glbal surcing frm the general equilibrium framewrk, s that the misspecificatin prblem n the relatinship can be avided. Secnd, the mdel includes a nn-tradable sectr as Krugman (995) and Cline (997) emphasize, s that there are tw different (skilled t less-skilled) relative wages: ne in tradables and ne in nntradables. Hence, the mdel enables us t explre the issue, whether an increase in glbal surcing affects the tw relative wages in the same way. The structure f this paper is as fllws. Sectin II presents a general equilibrium mdel f glbal surcing where there is a tradable final gd sectr, a tradable intermediate gd sectr, and a nn-tradable final gd sectr. Firms in the tradable final gd sectr cmbine dmestic and internatinal surcing f differentiated intermediate gds. Intermediate gds are prduced using nly sectr-specific skilled labr under increasing returns t scale at firm level. A mbile factr links the tradable gd sectr and the nn-tradable gd sectr. Thereby glbal surcing shifts nt nly intraindusty relative labr demand, but als interindusty relative labr demand. Sectin III derives intraindusty and interindusty relative wage equatins shaped by fur causal variables such as relative glbal surcing, factr endwments, the number f freign intermediate

4 Glbal Surcing and Relative Wages with a Nntradable Gd 73 gds, and freign demand fr intermediate gds. Based n these causes, cmparative static results fr the relative wage equatins are prvided. The results shw that an increase in glbal surcing affects these tw (skilled t less-skilled) relative wages in the different way. This implies that glbal surcing has nt necessarily a psitive assciatin with the relative demand fr skilled labr, which is a different predictin cmpared with the existing utsurcing literature. In this mdel, an increase in glbal surcing can cntribute t imprve the verall wage inequality, which depends n the share f mbile less-skilled labr used t prduce nn-traded gds. Since the magnitude f glbal surcing impact n the relative wage f skilled labr t less skilled labr within nn-tradable industry depends n the share f mbile less-skilled labr used t prduce nn-traded gds, the share has an imprtant plicy implicatin. Namely, it is highly prbable that an ecnmy with a big nn-tradable sectr experiences distributinal cnflicts fllwing high intensity f glbal surcing. Sectin IV cncludes. II. The Mdel Cnsider an ecnmy with three sectrs: tradable final gd sectr, tradable intermediate gd sectr, and nntradable final gd sectr. Assume free trade in final gds, and differentiated intermediate gds. Glbal surcing is characterized by trade in differentiated intermediate gds. Further, suppse that n migratin f labr is allwed acrss ecnmies. There are three factrs f prductin: intermediate gd sectr specific labr (L ts ), nntradable gd sectr specific labr (L nts ), and mbile labr (L m ). The labr markets are cmpetitive. It is assumed that sectr specific labr is skilled labr and mbile labr is less skilled labr. We can have tw justificatins fr the assumptin. First, the reasn why intermediate gd sectr specific labr is skilled ne has t d with mnplistic cmpetitin. Since mnplistic cmpetitin is assumed in the intermediate gd sectr, the prduct f that sectr has a market pwer. And it is usual fr skilled labr t have a market premium and thus t be specific t that sectr (e.g. cmputer-chip designers vs cmputer assembly line wrkers). Hence, we can assume intermediate gd sectr specific labr is skilled ne. Secnd, since nntradable gd sectr specific labr is mstly skilled ne in the real wrld (e.g. medical dctrs, prfessrs, barbers etc.), we can safely assume that. The tradable final gd X is prduced using nt nly mbile labr (L m ), but als

5 74 Yng-Yil Chi a variety f intermediate gds: T i, i =,..., (n+n f ), where n is a dmestic variety and n f is a freign variety. Assume n f is exgenusly given. Assuming an aggregate tw-stage Cbb-Duglas-CES prductin functin, the prductin functin f gd X takes the frm, X = L m α (Σ i =,, n + nf T i β ) α/β () If T i s are the same fr all i in the equatin (), (n + n f ) α/β represents external ecnmies f scale. It is assumed that 0<β < and 0 < α <, β =[ (/σ)], where σ = the cnstant elasticity f substitutin amng the variety f intermediate gds. The value f β shws the degree f substitutability amng intermediate gds. The lwer the β is, the mre differentiated the intermediate gds are, allwing higher external ecnmies fr the tradable final manufactures. The differentiated intermediate gds are prduced using nly sectr-specific labr (L ts ) under Chamberlinean mnplistic cmpetitin, s that the number f intermediate gds prduced is large enugh t make ligplistic interactin negligible. There are increasing returns at the level f an individual firm. The prductin f the i th intermediate gd, T i, invlves sme fixed labr input requirements (z ) and variable labr input requirements (zt i ) where z represents the cnstant marginal labr input requirements. It is assumed that all firms in the intermediate gd sectr acrss ecnmies are symmetric. Thus, in equilibrium, all intermediate gds actually prduced will be prduced in the same quantity and at the same price. Nntradable gd sectr specific labr (L nts ), and mbile labr (L m ) cmbine t prduce nntradable final gd Y by the Cbb-Duglas prductin functin which has a different distributive share γ (0, ). That is, the prductin functin f nntradable final gd Y is Y = L m γ L nts γ (2) Suppse bth final gds X and Y are prduced cmpetitively. Let gd Y be the

6 Glbal Surcing and Relative Wages with a Nntradable Gd 75 numeraire. Then, under free trade the cmmn cmpetitive prfit cnditins are P = k (n + n f ) (α/β)+α q α W m α =cw nts γ W m γ (3) (4) where k = α α ( α) α ; c = γ γ ( γ) γ ; p is the price f gd X; q is the price f intermediate gds; W m is the wage rate fr mbile labr; and W nts is the wage rate fr nntradable sectr specific labr. The cnditin fr prfit maximizatin in the tradable intermediate gd sectr is t equate marginal revenue t marginal cst, i.e. q[ ( β)] = W ts z (5) where W ts is the wage rate fr intermediate gd sectr specific labr, and ( β) is in abslute value the elasticity f the inverse demand fr intermediate gds. Since free entry is assumed, any nn-zer prfit will be eliminated and in equilibrium: qt =(z + zt) W ts (6) The mbile and immbile labr market clearing cnditins fr bth tradable sectrs are given, respectively, by k( α)(n +n f ) (α/β)+α q α W m α X + c( γ)w nts γ W m γ Y = L m n(z + zt)=l ts cγw nts γ W m γ Y = L nts (7) (8) (9) where L m is the endwment f mbile labr, L ts is the endwment f intermediate gd sectr specific labr, and L nts is the endwment f nntradable sectr specific labr. The natinal budget cnstraint is given by px + Y = pd x + D y + qh, (0)

7 76 Yng-Yil Chi where D x = demand fr X; D y = demand fr Y; H = net imprts f intermediate gds. H is assumed t be exgenus. The market clearing cnditin fr nntradable gds is Y = D y () The wrld market clearing cnditin fr intermediate gds is (n+n f )T d +(n + n f )T d f =(n + n f )T, (2) where T d = the hme usage f each intermediate prduct; n f = the number f freign intermediate gds; T d f = the freign usage f each intermediate prduct. T d f and n f are assumed t be exgenus. Dente net exprts f gd X as E that is assumed t be exgenus. Then, px = pd x + pe (3) This implies the quantities (net imprts f intermediates and net exprts f final gds) are taken as exgenus, and the prices are endgenusly slved fr. In ther wrds, the mdel mechanizes such a characteristic f the glbal surcing ecnmy that it is the intensity f glbal surcing relative t real trade balance has an impact n cmmdity terms-f-trade, p/q, which then affects factral terms-ftrade. T cmplete the mdel tradable-nntradable final gd expenditure cnstraints are needed. As the prductin specificatins indicate, the relative share α ut f the tradable final-gd incme is spent n the hme demand fr intermedeate gds, and the relative share γ ut f the nntradable final-gd incme ges t the wage bill fr the mbile labr emplyed at nntradable industry. That is, αpx = q(n + n f )T d (4) ( γ)y = δw m L m (5) where the share f mbile labr used t prduce nn-traded gds, δ, is an endgenus variable such that 0 < δ <. Therefre, thirteen independent equatins (3)-(5) will determine the value f

8 Glbal Surcing and Relative Wages with a Nntradable Gd 77 thirteen endgenus variables: p, W m, W ts, W nts, q, T, T d, X, Y, D x, D y, n, δ. III. Intraindustry and Interindustry Relative Wages The slutins f the mdel yield the fllwing equatins f relative wages in reduced frm: W ts = k W m α ( β )L ts + n f z α( β) ( α )β β -- z H --- E α (6) W nts W m = L m γ γ k L nts α ( β)l ( α) β α ( z ts + n f T z f β) z d H Ē -- L m Ω α (7) W ts W nts = α( β) α ( k β )L ( α )β ts + n β z f -- z H α --- E ( β)l L m γ α( α) β γ k α ( z ts + n Ω f T z f β) z d H L m Ē -- α L nts (8) α where Ω =. ( ( β) + α ) β As eqs. (6), (7), and (8) indicate, the exgenus variables t determine relative wages are (H/E), L m, L ts, L nts, n f, and T d f. Here, H/E indexes the relative glbal surcing that cunts the intensity f trade dependency. That is, if net imprts f intermediate gds in the hme cuntry grw faster than net exprts f final gds, the measure f relative glbal surcing will pick this up as high intensity f glbal surcing by dmestic firms with the rest f the wrld. Let Ia = the natural lg f (W ts /W m ). Let Ib be the natural lg f (W nts /W m ), and let Ic be the natural lg f (W ts /W nts ). If wage inequality is measured as the lg f relative wage, then Ia is the wage inequality between intermediate gd sectr

9 78 Yng-Yil Chi specific labr and mbile labr, and Ib is the wage inequality between nntradable final gd sectr specific labr and mbile labr. Since they measure the wage inequality resulting frm intraindustry activity, we can call them intraindustry wage inequality functins. Als, Ic is the wage inequality between tradable intermediate gd sectr specific labr and nn-tradable final gd sectr specific labr, which can be defined as interindustry wage inequality functin. A cmparative static exercise frm eqs. (6)-(8) gives the theretical effect f each exgenus variable n the wage inequality. T identify this, take the natural lg f bth sides f each relative wage equatin and ttally differentiate it. Then, each equatin is transfrmed int the type f relative change in variables as in (9)- (2) f the Appendix. A ^ ver variable indicates the relative change in that variable. Fr example, ( Ŵ ts W m )= d(w ts /W m )/(W ts /W m ), the relative change in the wage inequality between intermediate gd sectr specific labr and mbile labr. As (9)- (2) f the Appendix indicate, an increase (decrease) in relative glbal surcing (H/E) leads t a decrease (increase) in the relative wage f skilled labr t less skilled labr within tradable industry. This is because a greater glbal surcing causes the tradable industrys demand fr mbile labr t increase, while it causes the demand fr intermediate gd sectr-specific labr t decrease. Als, frm (5), we knw that the utput f nn-tradable industry increases fllwing an increase in glbal surcing, since [ δ/ (Η/Ε)] > 0, and [ W m / (Η/Ε)] > 0. This can be supprted by the fact that as the ecnmic glbalizatin increases, the service sectr tends t expand. Furthermre, under the situatin that tradable final gd sectr cmpetitively bids fr mbile labr fllwing an increase in glbal surcing, fr the utput f nn-tradable industry t increase the wage rate fr nn-tradable sectr specific labr shuld increase. Due t the magnificatin effect n nn-tradable utput by /( γ), the increase f W nts will be greater than that f W m. Thus, an increase (decrease) in relative glbal surcing (H/E) leads t an increase (decrease) in the relative wage f skilled labr t less skilled labr within nn-tradable industry. Therefre, we nw have the fllwing prpsitin: Prpsitin. A greater glbal surcing results in a reductin f the within tradable industry wage inequality and an increase f the within nn-tradable industry wage inequality. Prpsitin makes a cntrast with the finding f the majr utsurcing literature, which demnstrates simply a larger utsurcing causes wage divergence. This is because utsurcing is defined as displacement f relatively

10 Glbal Surcing and Relative Wages with a Nntradable Gd 79 unskilled labr intensive activity frm develped cuntries. Hwever, glbal surcing is an activity t cmbine the mst cmpetitive parts glbally withut regard t relative skill intensity. Thus, an increase in glbal surcing wuld tend t increase relative price f final gds. In the mdel here, since H/E = p/q, an increase in relative glbal surcing (H/E) leads t the increase in W m thrugh the relatinship between prduct and factr price, but the magnificatin effect n nntradable utput causes the tw different (skilled t less-skilled) relative wages t change in the different way. This results in the different implicatin that the intensity f glbal surcing can cntribute t reduce the verall wage inequality. Then, under what cnditin can an increase in glbal surcing imprve the verall wage inequality? The answer has t d with the magnificatin effect f glbal surcing n wage inequality. As presented in (9)-(2) f the Appendix, bth relative change in the within tradable industry wage inequality (Ia) and relative change in the interindustry wage inequality (Ic) are magnified due t relative change in glbal surcing, while relative change in the wage inequality within nn-tradable industry (Ib) can be either magnified r nt, which depends n the size f the share f mbile labr used t prduce nn-traded gds (δ). That is, frm (20), we can get the fllwing prpsitin: Prpsitin 2. If the share f mbile labr used t prduce the nn-traded gd (δ) is nt lager than a half, then relative change in the wage inequality between nn-tradable final gd sectr specific labr and mbile labr is magnified fllwing relative change in glbal surcing. In Prpsitin 2, δ 0.5 means that nn-tradable industry des nt use intensively mbile labr. And the share f mbile labr used t prduce nntraded gds (δ) is the nly channel fr glbal surcing t affect the relative wage f nn-tradable industry via the interindustry mvement f less skilled labr. S, under the cnditin δ 0.5, the nn-tradable utput magnificatin due t glbal surcing change has a greater impact n the nn-tradable sectr specific labr share f the industry wage bill. Thus, if δ 0.5, a change in glbal surcing magnifies the wage inequality f skilled t less skilled labr within nn-tradable industry. Prpsitin 2 suggests that there is a critical value f δ giving rise t a distributinal cnflict. This implies that if an ecnmys service sectr is large relative t ther sectrs, plicy makers shuld pay attentin t the value f δ t reduce glbalizatin tensin. The impact f labr endwment change n its wn relative wage is regular as expected. That is, an increase in each labr supply such as L ts, L nts, L m leads t

11 720 Yng-Yil Chi a decrease in the crrespnding relative wage expressed in eqs. (9)-(2) f the Appendix. Hwever, as presented in (20)-(2) f the Appendix, the impact f L ts n the relative wage f nn-tradable sectr specific labr is nt clearly determined. Namely, it depends n many factrs such as the relative share in ttal tradable final utput (α), the degree f substitutability amng intermediate gds (β), the share f mbile labr used t prduce nn-traded gds (δ), and the relative share f hme variety ut f ttal number f intermediate gds. Fr example, relative change in the wage inequality within nn-tradable industry (Ib) is negatively assciated with relative change in tradable sectr specific labr endwments if and nly if > [α /( α)] / [β /( β)]. Relative change in the wage inequality within tradable industry (Ia) is negatively assciated with relative change in the number f freign variety (n f ), as presented in (8). T explain this, suppse n f has increased. Then, external ecnmies f scale happen in tradable final gd sectr, which increases the prductivity f mbile labr. It causes the wage rate f mbile labr t rise. But the external ecnmies f scale lwer the wage rate f intermediate gd sectrspecific labr thrugh the cntractin f intermediate gd price. On the ther hand, the impact f n f n Ib r Ic depends n the value f Ω. Therefre, we can get Prpsitin 3. External ecnmies f scale due t freign innvatins reduce the within tradable industry wage inequality, while its impact n the within nn-tradable industry wage inequality depends n the relative share in ttal tradable final utput (α) and the degree f substitutability amng intermediate gds (β). Finally, relative change in the wage inequality within nn-tradable industry (Ib) is psitively assciated with relative change in freign demand fr each intermediate prduct (T d f ). This is because an increase (decrease) in T d f causes T d t decrease (increase) via (2), which results in the decline (increase) f demand fr mbile labr in tradable final gd industry and thus the fall (rise) f W m. Fr example, the sudden increase in freign demand fr D-ram chips will cause a cstpush in tradable final gd industry. But the decline (increase) f demand fr mbile labr in tradable final gd industry causes δ t rise (fall), which leads t an increase (decrease) in the prductivity f nn-tradable gd sectr specific labr. Hence, we nw get: Prpsitin 4. Freign demand bm fr intermediate prducts causes the wage inequality within nn-tradable industry t rise.

12 Glbal Surcing and Relative Wages with a Nntradable Gd 72 Table. The cmparative static results n relative wages Change E/H r (H/E) Effect n the wage inequality Ia Ib Ic + ( ) (+) L ts * ** L nts + ( ) Nne + L m Nne + n f * ** T d f Nne + Ntes: + indicates psitive assciatin; - indicates negative assciatin; * hlds if and nly if > [α /( α)] / [β /( β)]; ** hlds if > [α /( α)] / [β /( β)]; Ntatin is explained in the text. The findings in this sectin are summarized in the Table. V. Cnclusin In this paper I have intrduced a new cncept f a glbal surcing ecnmy and examined the effects f glbal surcing n relative wages. T d this I built a general equilibrium mdel that synthesizes the link between glbal surcing and relative wages. Frm the mdel I derived the theretical relative wages equatins shaped by fur causal variables such as relative glbal surcing, factr endwments, the number f freign intermediate gds, and freign demand fr intermediate gds. The cmparative static exercises based n these variables have shwn that the glbal surcing mdel has different results cmpared with the predictin f the existing utsurcing literature. The majr findings are as fllws: First, a greater glbal surcing results in a reductin f the within tradable industry wage inequality and an increase f the within nn-tradable industry wage inequality; Secnd, there is a critical value f the share f mbile labr used t prduce nn-traded gds giving rise t distributinal cnflicts fllwing glbal surcing; Third, external ecnmies f scale due t freign innvatins reduce the within tradable industry wage inequality, while its impact n the within nn-tradable industry wage inequality depends n the relative share in ttal tradable final utput and the degree f substitutability amng intermediate gds; Furth, freign demand bm fr intermediate prducts causes the wage inequality within nn-tradable industry t

13 722 Yng-Yil Chi rise. Therefre, frm the results, we can btain nt nly a thery cnsistent with the pssibility that an increase in glbal surcing imprves the verall wage inequality, but als the identificatin f fur causal variables t help aviding the misspecificatin prblem in the future empirical studies. Acknwledgement This research was financially supprted by Hansung University in the year f Received 5 March 200, Accepted 22 Octber 200 References Bzarth, C., Handfield, R. and Das, A. (998), Stages f Glbal Surcing Strategy. Evlutin: An Explratry Study, Jurnal f Operatins Management 6, Cline, W. R. (997), Trade and Incme Distributin, Washingtn, DC:IIE. Feenstra R.C. and Hansn, G.H. (999), The Impact f Outsurcing and Hightechnlgy Capital n Wages: Estimates fr The United States, , The Quartely Jurnal f Ecnmics, August, (997), Freign Direct Investment and Relative Wages:Evidence frm Mexics maquiladras, Jurnal f Internatinal Ecnmics 42: (996), Glbalizatin, Outsurcing, and Wage Inequality, AEA Papers and Prceedings 86(2), Krugman, P. (995) Grwing Wrld Trade: Causes and Cnsequences, Brkings Papers n Ecnmic Activity, Slaughter, M.J. (995) Multinatinal Crpratins, Outsurcing, and American Wage Divergence, Wrking Paper n.5253, Cambridge, MA.: Natinal Bureau f Ecnmic Research. (2000), Prductin Transfer within Multinatinal Enterprises and American Wages, Jurnal f Internatinal Ecnmics 50, Slaughter, M.J., and Swagel, P. (997) The Effect f Glbalizatin n Wages in the Advanced Ecnmies, Wrking Paper n. 43. Washingtn, DC: Internatinal Mnetary Fund.

14 Glbal Surcing and Relative Wages with a Nntradable Gd 723 Appendix ( β) L Ŵ ts z ts ( Ω W m ) = Lˆ n ts ( Ω ) f nˆ ( β) L ts + n ( β) f Ê αh f L ts + n f z ( β) f Ŵ nts δ T ˆ L nts d Tˆ f W m δ β ( z d -- p f δ Lˆ m Ω δ Lts z = δ ( β) T β) z d Lts + n f Ω δ n f nˆ δ f ( β) Lts + n ( δ Ê α) δ H f z ( β) f Ŵ ts δ T Lˆ nts d W nts δ β ( z Tˆ f Lts d -- f δ z = Lˆ m + ( Ω ) ( β) T β) z d Lts + n f δ Ω + n Lˆ ts ( Ω δ ) f δ Ω + + ( β) δ nˆ f + Lts + n z f z z z (9) (20) Lˆ ts ( α) -- Ê δ --- H (2) where δ = k α ( β)l ( α) β α ( z ts + n f T z f β) z d L m Ω H --- E α