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Globalization and U.S. Wages: Modifying Classic Theory to Explain Recent Facts

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  • Jonathan Haskel
  • Robert Z. Lawrence
  • Edward E. Leamer
  • Matthew J. Slaughter

Abstract

This paper seeks to review how globalization might explain the recent trends in real and relative wages in the United States. We begin with an overview of what is new during the last 10-15 years in globalization, productivity, and patterns of U.S. earnings. To preview our results, we then work through four main findings: First, there is only mixed evidence that trade in goods, intermediates, and services has been raising inequality between more- and less-skilled workers. Second, it is more possible, although far from proven, that globalization has been boosting the real and relative earnings of superstars. The usual trade-in-goods mechanisms probably have not done this. But other globalization channels—such as the combination of greater tradability of services and larger market sizes abroad—may be playing an important role. Third, seeing this possible role requires expanding standard Heckscher-Ohlin trade models, partly by adding insights of more recent research with heterogeneous firms and workers. Finally, our expanded trade framework offers new insights on the sobering fact of pervasive real-income declines for the large majority of Americans in the past decade.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.26.2.119
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Bibliographic Info

Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 26 (2012)
Issue (Month): 2 (Spring)
Pages: 119-40

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Handle: RePEc:aea:jecper:v:26:y:2012:i:2:p:119-40

Note: DOI: 10.1257/jep.26.2.119
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  1. Ann Harrison & John McLaren & Margaret S. McMillan, 2010. "Recent Findings on Trade and Inequality," NBER Working Papers 16425, National Bureau of Economic Research, Inc.
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Cited by:
  1. Edelman, Peter B. & Holzer, Harry J., 2013. "Connecting the Disconnected: Improving Education and Employment Outcomes Among Disadvantaged Youth," IZA Policy Papers 56, Institute for the Study of Labor (IZA).
  2. Bulent Unel & Elias Dinopoulos, . "Entrepreneurs, Jobs, and Trade," Departmental Working Papers 2013-04, Department of Economics, Louisiana State University.
  3. Rod TYERS, 2013. "China and Global Macroeconomic Interdependence," CAMA Working Papers 2013-34, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  4. Carsten Helm & Dominique Demougin, 2012. "Incentive Contracts and Efficient Unemployment Benefits in a Globalized World," Working Papers V-348-12, University of Oldenburg, Department of Economics, revised Aug 2012.
  5. Rod Tyers, 2014. "International Effects of China’s Rise and Transition: Neoclassical and Keynesian Perspectives," CAMA Working Papers 2014-05, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  6. Nathalie Chusseau & Joël Hellier, 2012. "Globalization and Inequality: Where do we stand?," Working Papers 279, ECINEQ, Society for the Study of Economic Inequality.
  7. repec:old:wpaper:348 is not listed on IDEAS
  8. Lakner, Christoph & Milanovic, Branko, 2013. "Global income distribution : from the fall of the Berlin Wall to the great recession," Policy Research Working Paper Series 6719, The World Bank.

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