Abstract

Over the last decades, productivity in the tradable sector rose substantially, while in the non-tradable sector, output per worker has remained the same, despite a similar increase in human capital in both sectors. This paper shows that a double duality both in the production and the higher-education sectors as well as heterogeneous ability of individuals might explain the differences in labor productivity between tradable and non-tradable industries. The double duality in the economy enables a separation of individuals by their ability, and in consequence, human capital in both industries is different. The heterogeneity in human capital can explain that despite an increase in human capital in both sectors there is still a gap in productivity and in wage premium. In other words, the productivity gap between sectors is fueled by the double duality in labor markets, leading to heterogeneity in human capital. In consequence, there is a contrast between on one hand, more mobility across countries, and on the other hand, less mobility between sectors.

Keywords: ability, skills, productivity, tradable goods, services, duality, higher education, human capital, wage premium