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Trade and Wages: Insights from the Crystal Ball

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  • Robert Z. Lawrence
  • Carolyn L. Evans

Abstract

This study uses both a net factor content analysis and a small simulation model to explore the impact on the U.S. labor market of a fivefold increase in imports of manufactured goods from developing countries. The simulation, which is parameterized by the US economy in 1990, involves a balanced trade expansion which displaces almost half of US manufacturing workers who are reemployed in the remaining manufacturing and non-trade sectors. The results show that relative wages of workers with a high school education or less would be depressed, while those with some college education would rise. However, despite the magnitude of the shock, the effects are surprisingly small. Once account is taken of productivity increases, labor force growth and export sector wage premiums, given unitary elasticities of demand and of substitution between workers with different levels of education, relative wages of workers with some college education rise by 3.5 percent, while the real wages of workers with a high school education or less decline by 1.3 percent. The impact of a variety of parameter assumptions is also explored.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5633.

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Date of creation: Jun 1996
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Handle: RePEc:nbr:nberwo:5633

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Cited by:
  1. Niven Winchester, 2006. "Searching for the Smoking Gun: Did Trade Hurt Unskilled Workers?," Working Papers 0605, University of Otago, Department of Economics, revised Sep 2006.
  2. Olivier Bontout & Sébastien Jean, 1998. "Sensibilité des salaires relatifs aux chocs exogènes de commerce international et de progrès technique: une évaluation d'équilibre général," Working Papers 1998-09, CEPII research center.
  3. Devadason, Evelyn, 2007. "Do Trading Partners Matter for Labour Market Inequality? The Malaysian Case," Review of Applied Economics, Review of Applied Economics, vol. 3(1-2).
  4. Olivier Bontout & Sébastien Jean, 2000. "What Drove Relative Wages in France? Structural Decomposition Analysis in a General Equilibrium Framework, 1970-1992," Working Papers 2000-03, CEPII research center.
  5. Michael Pflüger, 2001. "Trade, capital mobility, and the German labour market," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 137(3), pages 473-500, September.
  6. Niven Winchester, 2006. "Trade and Rising Wage Inequality: What can we learn from a Decade of Computable General Equilibrium Analysis?," Working Papers 0606, University of Otago, Department of Economics, revised Oct 2006.
  7. Michael Pflüger, 2003. "Trade, Technology and Labour Markets: Empirical Controversies in the Light of the Jones Model," Discussion Papers of DIW Berlin 328, DIW Berlin, German Institute for Economic Research.

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