Globalization, co-operation costs, and wage inequalities

Abstract

The falling cost of international business travel and communication motivates highlyskilled workers who live in developed countries to spend more of their time co-operating with less-skilled workers in developing countries. This tends to narrow the gap between developed and developing countries in the wages of less-skilled workers, but to widen the wage gap within developed countries between highly-skilled and less-skilled workers. The paper formalizes this mechanism and tests it on data for the United States and developing countries. The two effects on wage inequalities of greater co-operation of highly-skilled workers with workers in developing countries both seem quantitatively important.