Preference shifts and wage inequality. Issue 5 (4th July 2022)

• Record Type: Journal Article
• Authors: Pi, Jiancai; Huang, Xiangyu
• Is Part Of: Journal of international trade & economic development. Volume 31:Issue 5(2022)
• Page Start: 759
• Page End: 782
• Publication Date: 2022-07-04
• Subjects: Wage inequality -- preference shift -- Cobb–Douglas preference -- Dixit-Stiglitz preference -- quasi-linear preference; J31 -- L13; International trade -- Periodicals; Economic development -- Periodicals; 337
• DOI: 10.1080/09638199.2021.2022177
• Languages: English
• ISSNs: 0963-8199

Abstract

Abstract : This paper analyzes how preference shifts affect wage inequality. We take the Cobb–Douglas preference, the Dixit-Stiglitz preference and the quasi-linear preference into account, and find that there exists preference-driven wage inequality. In the two-type labor (i.e. skilled labor and unskilled labor) models, when the preferences of consumers for skilled products are strengthened, wage inequality will be widened (resp. narrowed down) if there is a relatively low (resp. high) capital intensity in the unskilled sector. We also build a three-type labor (i.e. high-skilled labor, medium-skilled labor, and unskilled labor) model and a model with a non-tradable unskilled sector to strengthen the explanatory power. The role of preferences shifts in changing wage inequality is overlooked by the existing literature.