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Wage Inequality,Technology and Trade: 21st Century Evidence

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  • John Van Reenen

Abstract

This paper describes and explains some of the principal trends in the wage and skill distribution in recent decades. There have been sharp increases in wage inequality across the OECD, beginning with the US and UK at the end of the 1970s. A good fraction of this inequality growth is due to technology-related increases in the demand for skilled workers outstripping the growth of their supply. Since the early 1990s, labour markets have become more polarized with jobs in the middle third of the wage distribution shrinking and those in the bottom and top third rising. I argue that this is because computerization complements the most skilled tasks, but substitutes for routine tasks performed by middle wage occupations such as clerks, leaving the demand for the lowest skilled service tasks largely unaffected. Finally, I argue that technology is partly endogenous, for example it has been spurred by trade with China. Thus, trade does matter for changes in the labour market through inducing faster technical change rather than just through the conventional Heckscher-Ohlin mechanism.

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Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Occasional Papers with number 28.

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Date of creation: May 2011
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Handle: RePEc:cep:cepops:28

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEPOP

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Keywords: wage inequality; technology; trade; polarization;

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Citations

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Cited by:
  1. Semih Akcomak & Henri de Groot & Stefan Groot, 2013. "The impact of trade, offshoring and multinationals on job loss and job finding," CPB Discussion Paper 252, CPB Netherlands Bureau for Economic Policy Analysis.
  2. Anwar, Sajid & Sun, Sizhong & Valadkhani, Abbas, 2013. "International outsourcing of skill intensive tasks and wage inequality," Economic Modelling, Elsevier, vol. 31(C), pages 590-597.
  3. Keiichi Kishi, 2013. "Dynamic analysis of wage inequality and creative destruction," Discussion Papers in Economics and Business 13-20, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  4. Nathalie Chusseau & Joël Hellier, 2012. "Globalization and Inequality: Where do we stand?," Working Papers 279, ECINEQ, Society for the Study of Economic Inequality.
  5. Joël Hellier, 2012. "North-South Globalization and Inequality," Working Papers 273, ECINEQ, Society for the Study of Economic Inequality.
  6. Hynninen, Sanna-Mari & Ojala, Jari & Pehkonen, Jaakko, 2013. "Technological change and wage premiums: Historical evidence from linked employer–employee data," Labour Economics, Elsevier, vol. 24(C), pages 1-11.
  7. Pekkarinen, Tuomas, 2012. "Gender Differences in Education," IZA Discussion Papers 6390, Institute for the Study of Labor (IZA).
  8. Alberto Dalmazzo & Antonio Accetturo & Guido de Blasio, 2012. "Skill Polarization in Local Labour Markets under Share-Altering Technical Change," ERSA conference papers ersa12p288, European Regional Science Association.

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