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Trade Flows and Wage Premiums: Does Who or What Matter?

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  • Mary E. Lovely
  • J. David Richardson

Abstract

In this paper we investigate relationships between trade, wages, and the rewards to skill for U.S. workers during the period 1981 - 92. We measure U.S. trade flows with three groups of trading partners -- industrial countries, newly industrial countries, and primary producers -- and we estimate the correlation of these trade flows with several types of wage premiums, using conditioning methods that separate pure wage premiums from the return to education industry by industry. We find that greater U.S. trade with newly industrializing countries is associated with increased rewards to skill and reduced rewards to pure labor, consistent with heightened wage inequality and distributional conflict. The opposite is usually true of greater trade with traditional industrial countries. Our interpretation of these results rests on two models. One is a model of North-North intraindustry trade in differentiated, skill-intensive intermediate goods ( horizontal' exchange) and North-South intraindustry trade in intermediates for finished manufactures ( vertical' exchange). The second is a simple model of industry wage premiums that are rewards for loyalty, firm-specific knowledge, or (dis)amenities, in which we posit different premiums for skilled and less-skilled workers whose labor markets are segmented from one another.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6668.

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Date of creation: Jul 1998
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Handle: RePEc:nbr:nberwo:6668

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  1. George J. Borjas, 1987. "Self-Selection and the Earnings of Immigrants," NBER Working Papers 2248, National Bureau of Economic Research, Inc.
  2. Cragg, Michael Ian & Epelbaum, Mario, 1996. "Why has wage dispersion grown in Mexico? Is it the incidence of reforms or the growing demand for skills?," Journal of Development Economics, Elsevier, vol. 51(1), pages 99-116, October.
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  9. Dani Rodrik, 1992. "The Rush to Free Trade in the Developing World: Why So Late? Why Now? Will it Last?," NBER Working Papers 3947, National Bureau of Economic Research, Inc.
  10. Robert C. Feenstra & Gordon H. Hanson, 1996. "Globalization, Outsourcing, and Wage Inequality," NBER Working Papers 5424, National Bureau of Economic Research, Inc.
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  12. Robert E. Baldwin & Glen G. Cain, 1997. "Shifts in U.S. Relative Wages: The Role of Trade, Technology and Factor Endowments," NBER Working Papers 5934, National Bureau of Economic Research, Inc.
  13. Jose Campa & Linda S. Goldberg, 1997. "The evolving external orientation of manufacturing: a profile of four countries," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 53-81.
  14. Topel, Robert H, 1994. "Regional Labor Markets and the Determinants of Wage Inequality," American Economic Review, American Economic Association, vol. 84(2), pages 17-22, May.
  15. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-93, March.
  16. Borjas, George J & Ramey, Valerie A, 1995. "Foreign Competition, Market Power, and Wage Inequality," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 1075-1110, November.
  17. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June.
  18. Grossman, Gene M, 1982. "Import Competition from Developed and Developing Countries," The Review of Economics and Statistics, MIT Press, vol. 64(2), pages 271-81, May.
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Cited by:
  1. Pizer, Steven D., 2000. "Does international competition undermine wage differentials and increase inequality?," Journal of International Economics, Elsevier, vol. 52(2), pages 259-282, December.
  2. Du Caju, Philip & Rycx, Francois & Tojerow, Ilan, 2011. "Wage Structure Effects of International Trade: Evidence from a Small Open Economy," IZA Discussion Papers 5597, Institute for the Study of Labor (IZA).
  3. Philip Du Caju & François Rycx & Ilan Tojerow, 2012. "Wage structure effects of international trade in a small open economy: The case of Belgium," ULB Institutional Repository 2013/138896, ULB -- Universite Libre de Bruxelles.
  4. Avraham Ebenstein & Ann Harrison & Margaret McMillan & Shannon Phillips, 2009. "Why are American Workers getting Poorer? Estimating the Impact of Trade and Offshoring Using the CPS," NBER Working Papers 15107, National Bureau of Economic Research, Inc.
  5. Kjell Erik Lommerud & Frode Meland & Lars S¯rgard, 2003. "Unionised Oligopoly, Trade Liberalisation and Location Choice," Economic Journal, Royal Economic Society, vol. 113(490), pages 782-800, October.
  6. Avraham Ebenstein & Ann Harrison & Margaret McMillan & Shannon Phillips, 2009. "Estimating the Impact of Trade and Offshoring on American Workers Using the Current Population Surveys," Discussion Papers Series, Department of Economics, Tufts University 0742, Department of Economics, Tufts University.
  7. Galiano, Sebastian & Porto, Guido G., 2006. "Trends in tariff reforms and trends in wage inequality," Policy Research Working Paper Series 3905, The World Bank.
  8. Scott, Ewan & Emerson, Robert D., 2001. "Wage Differentials And Trade Relationships In Jamaica: Applications Of Truncated Regression Models And Repeated Cross-Section Data," 2001 Annual meeting, August 5-8, Chicago, IL 20475, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  9. Sebastian Galiani & Pablo Sanguinetti, 2003. "The Impact of Trade Liberalization on Wage Inequality: Evidence from Argentina," Working Papers 65, Universidad de San Andres, Departamento de Economia, revised Oct 2003.
  10. Matthias Lücke, 1999. "Sectoral Value Added Prices, TFP Growth, and the Low-Skilled Wage in High-Income Countries," Kiel Working Papers 923, Kiel Institute for the World Economy.
  11. Carlos Casacuberta & Marcel Vaillant, 2002. "Trade and wages in Uruguay in the 1990’s," Documentos de Trabajo (working papers) 0902, Department of Economics - dECON.

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