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Shifts in U.S. Relative Wages: The Role of Trade, Technology and Factor Endowments

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  • Robert E. Baldwin
  • Glen G. Cain

Abstract

This paper investigates three hypotheses to account for the observed shifts in U.S. relative wages of less educated compared to more educated workers between 1967 and 1992: increased import competition, changes in the relative supplies of labor of different education levels and changes in technology. Our analysis relies on a basic relation of the standard general equilibrium trade model that relates changes in product prices to factor price changes and factor shares, and information about changes in the composition of output, trade, within-industry factor use and factor supplies. We conclude that the relative increase in the supply of well educated labor from 1967-1973 was the dominant force that narrowed the wage gap among workers of different education levels. The gap continued to narrow during the rest of the 1970s, but our results are not clear-cut enough to conclude that the continued increase in the rela- tive supply of more educated workers was the main factor shaping relative From 1980-1993, the wage gap between these workers widened sharply despite the continued relative increase in the supply of more educated workers. Increased import competition cannot account for the rise in wage inequality among these groups but it could have contributed to the decline in wages for the least educated. Instead, support is found for technical progress that is saving of less educated labor and more rapid in some manufacturing sectors using highly educated labor as the main force in widening the wage gaps these groups. Last, we use the Deardorff-Staiger model which allows changes in the factor content of trade to reveal the effects of trade on relative factor prices. Our tests show increased import competition from 1977 to 1987 was not the dominant force in widening the wage gap between more educated and less educated labor between those years.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5934.

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Date of creation: Feb 1997
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Handle: RePEc:nbr:nberwo:5934

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  1. Berman, Eli & Bound, John & Machin, Stephen, 1997. "Implications of Skill-Biased Technological Change: International Evidence," Working Paper Series 486, Research Institute of Industrial Economics.
  2. Borjas, G.J. & Freeman, R.B. & Katz, L.F., 1991. "On The Labor Market Effects Of Immigration And Trade," Harvard Institute of Economic Research Working Papers 1556, Harvard - Institute of Economic Research.
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  4. Deardorff, Alan V. & Staiger, Robert W., 1988. "An interpretation of the factor content of trade," Journal of International Economics, Elsevier, vol. 24(1-2), pages 93-107, February.
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  7. Stephen Nickell & D Nicolitsas, 1994. "Wages," CEP Discussion Papers dp0219, Centre for Economic Performance, LSE.
  8. Martin, John P & Evans, John M, 1981. "Notes on Measuring the Employment Displacement Effects of Trade by the Accounting Procedure," Oxford Economic Papers, Oxford University Press, vol. 33(1), pages 154-64, March.
  9. Wood, Adrian, 1995. "North-South Trade, Employment and Inequality: Changing Fortunes in a Skill-Driven World," OUP Catalogue, Oxford University Press, number 9780198290155.
  10. Alan B. Krueger, 1997. "Labor Market Shifts and the Price Puzzle Revisited," NBER Working Papers 5924, National Bureau of Economic Research, Inc.
  11. Berman, Eli & Bound, John & Griliches, Zvi, 1994. "Changes in the Demand for Skilled Labor within U.S. Manufacturing: Evidence from the Annual Survey of Manufactures," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 367-97, May.
  12. Revenga, Ana L, 1992. "Exporting Jobs? The Impact of Import Competition on Employment and Wages in U.S. Manufacturing," The Quarterly Journal of Economics, MIT Press, vol. 107(1), pages 255-84, February.
  13. Jones, Ronald W. & Peter Neary, J., 1984. "The positive theory of international trade," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 1, pages 1-62 Elsevier.
  14. Ronald Jones, 1970. "The Role of Technology in the Theory of International Trade," NBER Chapters, in: The Technology Factor in International Trade, pages 73-94 National Bureau of Economic Research, Inc.
  15. Edward E. Leamer, 1996. "In Search of Stolper-Samuelson Effects on U.S. Wages," NBER Working Papers 5427, National Bureau of Economic Research, Inc.
  16. Edward E. Leamer, 1992. "Wage Effects of A U.S. - Mexican Free Trade Agreement," NBER Working Papers 3991, National Bureau of Economic Research, Inc.
  17. Paul Krugman & Robert Lawrence, 1993. "Trade, Jobs, and Wages," NBER Working Papers 4478, National Bureau of Economic Research, Inc.
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