Income Inequality in Advanced Economies: A Critical Examination of the Trade and Technology Theories and an Alternative Perspective
AbstractThis paper critically examines the trade and technology theories which dominate the large and growing literature on the determinants of changes in income inequality in advanced industrial countries during the 1980s and 1990s. Both theories, despite their rather different approaches to the subject are shown to have a common premise: advanced countries have experienced a fall in the relative demand for unskilled labour and an increase in that of skilled labour. This single explanation for both phenomena has been dubbed the 'transatlantic consensus'. This paper argues that this consensus, together with the associated theories based on trade with the Third World and skill biased technological progress respectively, is analytically as well as empirically unsatisfactory. It puts forward an alternative analysis which emphasises the role of institutions (e.g. unions, minimum wages), macro-economic conditions and social norms. It naturally arrives at rather different policy conclusions from those of the orthodox economists.
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Bibliographic InfoPaper provided by ESRC Centre for Business Research in its series ESRC Centre for Business Research - Working Papers with number wp219.
Date of creation: Dec 2001
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Income inequality; manufactured imports from developing countries; skill biased technical progress;
Find related papers by JEL classification:
- D3 - Microeconomics - - Distribution
- F3 - International Economics - - International Finance
- O3 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-04-25 (All new papers)
- NEP-DEV-2002-04-25 (Development)
- NEP-LAB-2002-04-25 (Labour Economics)
- NEP-PKE-2002-04-25 (Post Keynesian Economics)
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