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Trade and Rising Wage Inequality: What Can We Learn from a Decade of Computable General Equilibrium Analysis?

In: Globalisation and Labour Market Adjustment

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  • Niven Winchester

Abstract

Increased North-South, or developed-developing, trade and rising skilled-unskilled relative wages (or skill premiums) in the North are linked via two propositions widely used by trade economists — the Heckscher-Ohlin (HO) and Stolper-Samuelson (SS) theorems. Specifically, if the global economy is HO, and skilled and unskilled labour the factors of production, the skill-abundant North will export the skill intensive good and the unskilled-abundant South will export the unskilled intensive commodity. If, as has occurred in recent decades, there is an increase in the relative economic size of the South and/or trade frictions are reduced, then the relative price of skill intensive products will rise in the North. This price movement, in accordance with the SS theorem, will increase the skilled wage and decrease the unskilled wage.

Suggested Citation

  • Niven Winchester, 2008. "Trade and Rising Wage Inequality: What Can We Learn from a Decade of Computable General Equilibrium Analysis?," Palgrave Macmillan Books, in: David Greenaway & Richard Upward & Peter Wright (ed.), Globalisation and Labour Market Adjustment, chapter 4, pages 54-72, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-58238-5_4
    DOI: 10.1057/9780230582385_4
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    References listed on IDEAS

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    1. Stephen Tokarick, 2005. "Quantifying the Impact of Trade on Wages: the Role of Nontraded Goods," Review of International Economics, Wiley Blackwell, vol. 13(5), pages 841-860, November.
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    4. Niven Winchester & David Greenaway & Geoffrey V. Reed, 2006. "Skill Classification and the Effects of Trade on Wage Inequality," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 142(2), pages 287-306, July.
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    Cited by:

    1. Harris, Richard G. & Robertson, Peter E., 2013. "Trade, wages and skill accumulation in the emerging giants," Journal of International Economics, Elsevier, vol. 89(2), pages 407-421.
    2. Tyers, Rod, 2015. "International effects of China's rise and transition: Neoclassical and Keynesian perspectives," Journal of Asian Economics, Elsevier, vol. 37(C), pages 1-19.
    3. Mirza, Tasneem & Narayanan, Badri & van Leeuwen, Nico, 2014. "Impact of Chinese growth and trade on labor in developed countries," Economic Modelling, Elsevier, vol. 38(C), pages 522-532.
    4. Niven Winchester, 2008. "Searching for the Smoking Gun: Did Trade Hurt Unskilled Workers?," The Economic Record, The Economic Society of Australia, vol. 84(265), pages 141-156, June.
    5. Amrita Chatterjee & Sanjib Pohit & Arpita Ghose, 2016. "Trade and Distributional Impacts of Genetically Modified Crops in India: A CGE Analysis," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 10(3), pages 381-407, August.

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    More about this item

    Keywords

    Computable General Equilibrium; Wage Inequality; Unskilled Labour; Relative Wage; Perfect Competition;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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