Publication type: Conference paper
Type of review: Peer review (abstract)
Title: Labor market effects of trade induced technological change under intellectual property rights protection
Authors: Zoller-Rydzek, Benedikt
et. al: No
Conference details: ETSG 2019 BERN 21st Annual Conference, Bern, 12-14 September 2019
Issue Date: 2019
Publisher / Ed. Institution: European Trade Study Group
Language: English
Subject (DDC): 331: Labor economics
Abstract: In this paper I develop a theoretical model of wage inequality and unemployment of two types of workers (high and low skilled) in the context of trade induced technological change under different intellectual property rights (IPR) regimes. I argue that trade between two countries with different skill ratios (different relative supplies of high and low skilled workers) leads to an increasing wage gap independent of the IPR regime. If IPRs are not enforced, the unemployment rate of high skilled workers declines and of low skilled workers increases in the country with the higher skill ratio after trade liberalization. If IPRs are enforced, the unemployment rates for both skill groups decline. The main reason for these opposing effects is the reactions of R&D firms after trade liberalization. With full enforcement of IPR R&D firms will consider the aggregate demand of both markets (countries) for their investment, which leads to changes in the relative demand of high and low skilled complementary technology. More specifically, the demand for technology is related to the supply of high and low skilled workers, trade liberalization with IPR protection will lead to low skilled biased technological change in the country with the higher skill ratio and to high skilled biased technological change in the country with the lower skill ratio. With full IPR protection the aggregated skill ratio declines from the perspective of the high skill abundant country and increases for the low skill abundant country after trade liberalization. Nevertheless, the (positive) price effect of trade liberalization still favors high skilled workers in the high skill abundant country, which can lead to an increasing wage gap. I use CPS (current population survey) data to show that in the US low-skilled-workers in industries more exposed to trade with IPR violating countries face more negative labor market outcomes. Moreover, I calibrate the theoretical model to match the US and Chinese economies to demonstrate that under IPR protection trade liberalization leads to a higher wage gap, lower unemployment, and to higher wages for all workers. I show that due to nonlinearities in the production function the price effect dominates in the high skill abundant country and the technology effect in the low skill abundant country if IPRs are enforced. Thus, trade liberalization along with IPR enforcement can explain a significant increase of within country inequality. Moreover, due to the market size effect for technology, trade liberalization leads to faster technological progress and high and low skilled workers become simultaneously more productive, which is an additional gain from trade. In the context of a search unemployment model this implies that the unemployment rates for both skill groups declines. Hence, policy makers should favor trade liberalization under IPR protection, as it has higher gains from trade (in terms of real wages) and lower unemployment rates relative to trade liberalization without IPR protection. The results in the paper are clearly in line with the recent literature on the China shock, but suggests that a stronger emphasis on IPR protection during trade liberalization is able to mitigate some of the negative effects.
Fulltext version: Published version
License (according to publishing contract): Licence according to publishing contract
Departement: School of Management and Law
Organisational Unit: International Management Institute (IMI)
Appears in Collections:Publikationen School of Management and Law

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