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Blue-Collar Blues: Is Trade to Blame for Rising US Income Inequality?

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  • Robert Z. Lawrence

    (Peterson Institute for International Economics)

Abstract

International trade accounts for only a small share of growing income inequality and labor-market displacement in the United States. Lawrence deconstructs the gap in real blue-collar wages and labor productivity growth between 1981 and 2006 and estimates how much higher these wages might have been had income growth been distributed proportionately and how much of the gap is due to measurement and technical factors about which little can be done. * While increased trade with developing countries may have played some part in causing greater inequality in the 1980s, surprisingly, over the past decade the impact of such trade on inequality has been relatively small. Many imports are no longer produced in the United States, and US goods and services that do compete with imports are not particularly intensive in unskilled labor. Rising income inequality and slow real wage growth since 2000 reflect strong profit growth, much of which may be cyclical, and dramatic income gains for the top 1 percent of wage earners, a development that is more closely related to asset-market performance and technological and institutional innovations rather than conventional trade in goods and services. The minor role of trade, therefore, suggests that any policy that focuses narrowly on trade to deal with wage inequality and job loss is likely to be ineffective. Instead, policymakers should (a) use the tax system to improve income distribution and (b) implement adjustment policies to deal more generally with worker and community dislocation.

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Bibliographic Info

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This book is provided by Peterson Institute for International Economics in its series Peterson Institute Press: All Books with number pa85 and published in 2008.

ISBN: 978-0-88132-414-3
Handle: RePEc:iie:ppress:pa85

Note: Policy Analyses in International Economics 85
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Cited by:
  1. Ebenstein, Avraham & Harrison, Ann & McMillan, Margaret & Phillips, Shannon, 2011. "Estimating the impact of trade and offshoring on American workers using the current population surveys," Policy Research Working Paper Series 5750, The World Bank.
  2. Hans Fehr & Sabine Jokisch & Laurence J. Kotlikoff, 2009. "Dynamic Globalization and its Potentially Alarming Prospects for Low-Wage Workers," FIW Working Paper series 022, FIW.
  3. Lawrence, Robert Z., 2013. "Associations of Southeast Asian Nations, People's Republic of China, and India Growth and the Rest of the World: The Role of Trade," Working Paper Series rwp13-013, Harvard University, John F. Kennedy School of Government.
  4. Avraham Ebenstein & Ann Harrison & Margaret McMillan & Shannon Phillips, 2009. "Why are American Workers getting Poorer? Estimating the Impact of Trade and Offshoring Using the CPS," NBER Working Papers 15107, National Bureau of Economic Research, Inc.
  5. Stefan Groot, 2011. "Wages in the Netherlands: a Micro Approach," ERSA conference papers ersa10p1526, European Regional Science Association.

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