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Quantifying the Impact of Trade on Wages: the Role of Nontraded Goods

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  • Stephen Tokarick

Abstract

This paper uses an applied general-equilbrium model to decompose the effects of changes in trade- and technology-related variables between 1982 and 1996 in the United States on the wages of skilled and unskilled labor. The results indicate that trade-related variables (tariff cuts, improvement in the terms of trade, and the increase in the trade deficit) had little impact on the widening wage gap. The major factor behind the rise in the skilled wage relative to the unskilled wage was differential rates of growth in skill-biased technical change across sectors. The paper also highlights the role that nontraded goods play in explaining the wage gap. Finally, the paper presents estimates of how wages would change if the economy moved to autarky. The results show that expanding trade could actually reduce wage inequality, rather than increase it. Copyright 2005 International Monetary Fund.

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  • Stephen Tokarick, 2005. "Quantifying the Impact of Trade on Wages: the Role of Nontraded Goods," Review of International Economics, Wiley Blackwell, vol. 13(5), pages 841-860, November.
  • Handle: RePEc:bla:reviec:v:13:y:2005:i:5:p:841-860
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    Cited by:

    1. Tyers, Rod, 2015. "International effects of China's rise and transition: Neoclassical and Keynesian perspectives," Journal of Asian Economics, Elsevier, pages 1-19.
    2. Julian Emami Namini & Ricardo A. López, 2013. "Factor price overshooting with trade liberalization: theory and evidence," Scottish Journal of Political Economy, Scottish Economic Society, pages 139-181.
    3. Roberto Álvarez & Ricardo A. López, 2009. "Skill Upgrading and the Real Exchange Rate," The World Economy, Wiley Blackwell, vol. 32(8), pages 1165-1179, August.
    4. Kazuki Tomioka & Rod Tyers, 2016. "Has Foreign Growth Contributed to Stagnation and Inequality in Japan?," Economics Discussion / Working Papers 16-14, The University of Western Australia, Department of Economics.
    5. Chi-Chur Chao & Pasquale M. Sgro, 2008. "Environmental Control, Wage Inequality and National Welfare for a Tourism Economy," Working Papers 78, Sapienza University of Rome, CIDEI.
    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.

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