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

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  • 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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Keywords: Factor Supplies and Wages; Technology and Wages; Trade and Wages;

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  1. George J. Borjas & Richard B. Freeman & Lawrence F. Katz, 1992. "On the Labor Market Effects of Immigration and Trade," NBER Chapters, in: Immigration and the Workforce: Economic Consequences for the United States and Source Areas, pages 213-244 National Bureau of Economic Research, Inc.
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  14. Paul Krugman & Robert Lawrence, 1993. "Trade, Jobs, and Wages," NBER Working Papers 4478, National Bureau of Economic Research, Inc.
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  18. Wood, Adrian, 1995. "North-South Trade, Employment and Inequality: Changing Fortunes in a Skill-Driven World," OUP Catalogue, Oxford University Press, number 9780198290155, September.
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