Globalization and Labor Market Polarization

The globe has become a well integrated economy. In the process of globalization, the comparative advantages facing each country in the world market were inevitably reshuffled which accounted for a major force driving the evolution path of an economy’s industrial and employment structures. Over the past two decades, the phenomenon of job polarization has gradually emerged in several advanced economies, such as the US, UK, and Germany, as documented in recent empirical research. Job polarization is a phrase coined by labor economists to characterize the marked pattern of the labor market with employment polarizing into high-wage and low-wage occupations at expense of vanishing middle-wage works. The phenomenon is not a single event but observed in several countries and regions with support of anecdotal evidences as well as rigorous academic studies.The question posed and to be answered by this project is whether and to what extent that globalization has contributed the cause of the phenomenon of job polarization. This project aims to study how the labor market responses from both the demand-side and supply-side to the terms of trade shocks. It offers a general-equilibrium framework with which the researchers can study how individual’s education decision and resource reallocation among industries respond to increasing integrated global economy, which leads to the particular evolution path in the labor market.It aims to answer whether or not the job polarization phenomenon is an “advanced-country-specific” syndrome. Under the exposure of terms-of-trade shock, how the dynamics of labor market in the less-developed countries will look like during the process of globalization. It also aims to address how the size of the countries, the distribution of individuals’ innate talent, the distribution of individuals’ initial wealth endowment, and the asymmetric credit market imperfection are going to shape the dynamics of labor market in the advanced and developing country simultaneously.Finally, it will empirically quantify the relevance and importance of globalization in shaping the employment structure of the labor market and wage distributions.