GEP Research Paper 05/05
Fair Wages, Unemployment and Technological Change in a Global Economy
Udo Kreickemeier and Douglas Nelson
Abstract
In this paper we analyze the effects of global and national technological change on employment levels and relative wages in an integrated two-country world (“ Europe ” and “ America ”), where both countries are characterized by equilibrium unemployment due to fair wage constraints. The asymmetry between the two countries arises from country-specific preferences towards
wage inequality, with Europe 's preferences being more egalitarian. Furthermore, we look at trade integration between this two-country world and a third country (“low wage south”). We derive an analytical tool, the Virtual Integrated Equilibrium , that allows us to adapt Dixit and Norman's well known Integrated Equilibrium approach to a situation where both trading countries have endogenous unemployment levels.
Issued in March 2005.
This paper is available in PDF format .