Trade and market congestion: An explanation for widening skilled–unskilled wage differential.

A model of trade with monopolistic competition is set up to explain unidirectional movements in skilled–unskilled wage differential observed in most parts of the world. With trade, an individual firm faces a higher number of competitors. This rise in the number of market participants requires each firm to spend higher amount of a skill intensive resource to survive in the global market consequently raising the relative demand for skilled labor and thereby increasing the skilled–unskilled wage ratio. [ABSTRACT FROM AUTHOR]