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Quantifying the Impact of Trade on Wages: the Role of Nontraded Goods

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  • Stephen Tokarick
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    Abstract

    This paper uses an applied general-equilbrium model to decompose the effects of changes in trade- and technology-related variables between 1982 and 1996 in the United States on the wages of skilled and unskilled labor. The results indicate that trade-related variables (tariff cuts, improvement in the terms of trade, and the increase in the trade deficit) had little impact on the widening wage gap. The major factor behind the rise in the skilled wage relative to the unskilled wage was differential rates of growth in skill-biased technical change across sectors. The paper also highlights the role that nontraded goods play in explaining the wage gap. Finally, the paper presents estimates of how wages would change if the economy moved to autarky. The results show that expanding trade could actually reduce wage inequality, rather than increase it. Copyright 2005 International Monetary Fund.

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Review of International Economics.

    Volume (Year): 13 (2005)
    Issue (Month): 5 (November)
    Pages: 841-860

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    Handle: RePEc:bla:reviec:v:13:y:2005:i:5:p:841-860

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    Cited by:
    1. Niven Winchester, 2006. "Trade and Rising Wage Inequality: What can we learn from a Decade of Computable General Equilibrium Analysis?," Working Papers 0606, University of Otago, Department of Economics, revised Oct 2006.
    2. 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.
    3. Roberto Alvarez & Ricardo Lopez, 2008. "Skill Upgrading and the Real Exchange Rate," Caepr Working Papers 2008-020, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
    4. Julian Emami Namini & Ricardo A. López, 2013. "Factor price overshooting with trade liberalization: theory and evidence," Scottish Journal of Political Economy, Scottish Economic Society, vol. 60(2), pages 139-181, 05.

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