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Shifts in US Relative Wages: The Role of Trade, Technology and Factor Endowments

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Author Info
Baldwin, Robert E
Cain, Glen C
Abstract

This paper investigates three hypotheses to account for the observed shifts in US relative wages of less educated workers compared to more educated workers from 1967–92: (i) increased import competition; (ii) changes in the relative supplies of labour of different educational levels; and (iii) changes in technology. Our analysis relies on a basic relationship of the standard general equilibrium trade model, that relates changes in product prices to factor price changes and factor shares, together with information about changes in the composition of output, trade, within-industry factor use and factor supplies. We find support for the hypothesis that the relative increase in the supply of well-educated labour was the dominant economic force that narrowed the wage gap in the late 1960s and early 1970s. Our results also indicate that technical progress rather than increased import competition was the dominant force in the widening of the wage gap among the major education groups after 1980.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1596.

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Date of creation: Mar 1997
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Handle: RePEc:cpr:ceprdp:1596

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Related research
Keywords: Factor Supplies and Wages; Technology and Wages; Trade and Wages;

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Find related papers by JEL classification:
F10 - International Economics - - Trade - - - General
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

Cited by:
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  1. James Harrigan, 1998. "International trade and American wages in general equilibrium, 1967-1995," Staff Reports 46, Federal Reserve Bank of New York. [Downloadable!]
    Other versions:
  2. Stephen Tokarick, 2002. "Quantifying the Impact of Trade on Wages: The Role of Nontraded Goods," IMF Working Papers 02/191, International Monetary Fund. [Downloadable!]
  3. Lisandro Abrego & John Whalley, 2002. "Decomposing Wage Inequality Change Using General Equilibrium Models," NBER Working Papers 9184, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Haskel, Jonathan & Slaughter, Matthew, 1999. "Trade, Technology and UK Wage Inequality," CEPR Discussion Papers 2091, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  5. Gustavo Gonzaga & Naércio Menezes Filho & Cristina Terra, 2006. "Trade Liberalization and the Evolution of Skill Earnings Differentials in Brazil," Development Working Papers 216, Centro Studi Luca d\'Agliano, University of Milano. [Downloadable!]
    Other versions:
  6. Guido G. Porto, 2003. "Using survey data to assess the distributional effects of trade policy," Policy Research Working Paper Series 3137, The World Bank. [Downloadable!]
    Other versions:
  7. Riccardo Faini & Anna M. Falzoni & Marzio Galeotti & Rodolfo Helg & Alessandro Turrini, 2001. "Importing Jobs And Exporting Firms? On The Wage And Employment Implications Of Italy’S Trade And Foreign Direct Investment Flows," International Trade 0103002, EconWPA. [Downloadable!]
    Other versions:
  8. Donghoon Lee & Kenneth I. Wolpin, 2005. "Accounting for Wage and Employment Changes in the U. S. from 1968-2000: A Dynamic Model of Labor Market Equilibrium," PIER Working Paper Archive 06-005, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 02 Jan 2006. [Downloadable!]
    Other versions:
  9. Peter Gottschalk & Mary Joyce, 1997. "Cross-National Differences in the Rise in Earnings Inequality: Market and Institutional Factors," Boston College Working Papers in Economics 366, Boston College Department of Economics. [Downloadable!]
    Other versions:
  10. Lars Calmfors & Giancarlo Corsetti & Michael P. Devereux & Gilles Saint-Paul & Hans-Werner Sinn & Jan-Egbert Sturm & Xavier Vives, 2008. "Chapter 3: The effect of globalisation on Western European jobs: curse or blessing?," EEAG Report on the European Economy, CESifo Group Munich, vol. 0, pages 71-104, 02. [Downloadable!]
  11. Gustavo Gonzaga & Beatriz Muriel & Cristina Terra, 2005. "Abertura Comercial, Desigualdade Salarial E Sindicalização," Anais do XXXIII Encontro Nacional de Economia [Proceedings of the 33th Brazilian Economics Meeting] 073, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics]. [Downloadable!]
  12. Lisandro Abrego & John Whalley, 2000. "Demand Side Considerations and the Trade and Wages Debate," NBER Working Papers 7674, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. James Harrigan & Rita Balaban, 1999. "U.S. Wages in General Equilibrium: The Effects of Prices, Technology, and Factor Supplies, 1963-1991," NBER Working Papers 6981, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  14. Mary E. Lovely & J. David Richardson, 1998. "Trade Flows and Wage Premiums: Does Who or What Matter?," NBER Working Papers 6668, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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