The relative impact of different forces of globalization on wage inequality: A fresh look at the EU experience. Issue 4 (14th January 2022)

• Record Type: Journal Article
• Authors: Jestl, Stefan; Leitner, Sandra M.; Leitner, Sebastian
• Is Part Of: Review of international economics. Volume 30:Issue 4(2022)
• Page Start: 1003
• Page End: 1037
• Publication Date: 2022-01-14
• Subjects: FDI -- immigration -- Shapley value decomposition -- trade -- wage inequality; International economic relations -- Periodicals; International finance -- Periodicals; Economic policy -- Periodicals; 330
• DOI: 10.1111/roie.12592
• Languages: English
• ISSNs: 0965-7576

Abstract

Abstract: This paper analyzes in a joint approach the contributions of immigration, trade, and foreign direct investment (FDI) to wage inequality of native workers in a sample of old and new EU Member States between 2008 and 2013. Methodologically, we use the two‐step regression‐based Shapley value decomposition approach to filter out their relative importance in each of the countries analyzed. We find that globalization has very mixed effects and generally contributes little to wage inequality. Regarding their relative contributions, immigration and FDI are key contributors to wage inequality in old EU Member States while trade is the key source of wage inequality in new EU Member States. For immigration, the associated increase in wage inequality is strongest and most consistent among Southern EU Member States. We also show that immigration, trade, and FDI have different effects across the wage distribution that are however strongest at its center, which points to the relatively strong wage polarization effect of globalization. For trade and FDI, we also find sporadic inequality‐reducing effects that are strongest at the top of the wage distribution.