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Blue-Collar Blues: Is Trade to Blame for Rising US Income Inequality?

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  • Robert Z. Lawrence

    (Peterson Institute for International Economics)

Abstract

International trade accounts for only a small share of growing income inequality and labor-market displacement in the United States. Lawrence deconstructs the gap in real blue-collar wages and labor productivity growth between 1981 and 2006 and estimates how much higher these wages might have been had income growth been distributed proportionately and how much of the gap is due to measurement and technical factors about which little can be done. * While increased trade with developing countries may have played some part in causing greater inequality in the 1980s, surprisingly, over the past decade the impact of such trade on inequality has been relatively small. Many imports are no longer produced in the United States, and US goods and services that do compete with imports are not particularly intensive in unskilled labor. Rising income inequality and slow real wage growth since 2000 reflect strong profit growth, much of which may be cyclical, and dramatic income gains for the top 1 percent of wage earners, a development that is more closely related to asset-market performance and technological and institutional innovations rather than conventional trade in goods and services. The minor role of trade, therefore, suggests that any policy that focuses narrowly on trade to deal with wage inequality and job loss is likely to be ineffective. Instead, policymakers should (a) use the tax system to improve income distribution and (b) implement adjustment policies to deal more generally with worker and community dislocation.

Suggested Citation

  • Robert Z. Lawrence, 2008. "Blue-Collar Blues: Is Trade to Blame for Rising US Income Inequality?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number pa85.
  • Handle: RePEc:iie:ppress:pa85 Note: Policy Analyses in International Economics 85
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    References listed on IDEAS

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    1. Carmen M. Reinhart & Kenneth S. Rogoff, 2011. "From Financial Crash to Debt Crisis," American Economic Review, American Economic Association, vol. 101(5), pages 1676-1706, August.
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    Cited by:

    1. Harris, Richard G. & Robertson, Peter E., 2013. "Trade, wages and skill accumulation in the emerging giants," Journal of International Economics, Elsevier, pages 407-421.
    2. Avraham Ebenstein & Ann Harrison & Margaret McMillan & Shannon Phillips, 2014. "Estimating the Impact of Trade and Offshoring on American Workers using the Current Population Surveys," The Review of Economics and Statistics, MIT Press, vol. 96(4), pages 581-595, October.
    3. Hans Fehr & Sabine Jokisch & Laurence J. Kotlikoff, 2008. "Dynamic Globalization and Its Potentially Alarming Prospects for Low-Wage Workers," NBER Working Papers 14527, National Bureau of Economic Research, Inc.
    4. Robert Koopman & Zhi Wang & Shang-Jin Wei, 2008. "How Much of Chinese Exports is Really Made In China? Assessing Domestic Value-Added When Processing Trade is Pervasive," NBER Working Papers 14109, National Bureau of Economic Research, Inc.
    5. Robert Z. Lawrence & Lawrence Edward, 2010. "Do Developed and Developing Countries Compete Head to Head in High Tech?," Working Paper Series WP10-8, Peterson Institute for International Economics.
    6. Douglas L. Campbell & Lester Lusher, 2016. "The Impact of Real Exchange Rate Shocks on Manufacturing Workers: An Autopsy from the MORG," Working Papers w0223, Center for Economic and Financial Research (CEFIR).
    7. Sebastian Benz & Wilhelm Kohler, 2014. "Managerial versus Production Wages: Offshoring, Country Size, and Endowments," Canadian Journal of Economics, Canadian Economics Association, vol. 47(1), pages 250-271, February.
    8. Lawrence Edwards & Robert Lawrence, 2010. "US Trade and Wages: The Misleading Implications of Conventional Trade Theory," Working Papers 180, Economic Research Southern Africa.
    9. Mark D. Partridge & Dan S. Rickman & M. Rose Olfert & Ying Tan, 2017. "International trade and local labor markets: Do foreign and domestic shocks affect regions differently?," Journal of Economic Geography, Oxford University Press, vol. 17(2), pages 375-409.
    10. Anusha Chari & Peter Blair Henry & Diego Sasson, 2012. "Capital Market Integration and Wages," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(2), pages 102-132, April.
    11. Robert Z. Lawrence, 2013. "Association of Southeast Asian Nations, People's Republic of China, and India Growth and the Rest of the World : The Role of Trade," Development Economics Working Papers 23409, East Asian Bureau of Economic Research.
    12. Hillebrand Evan E & Lewer Joshua J. & Zagardo Janice Turtora, 2011. "Backtracking from Globalization," Global Economy Journal, De Gruyter, vol. 10(4), pages 1-19, January.
    13. Dew-Becker, Ian & Gordon, Robert J, 2008. "Controversies about the Rise in American Inequality: A Survey," CEPR Discussion Papers 6817, C.E.P.R. Discussion Papers.
    14. Stefan Groot, 2011. "Wages in the Netherlands: a Micro Approach," ERSA conference papers ersa10p1526, European Regional Science Association.
    15. Henry, Peter Blair & Sasson, Diego, 2009. "Capital Market Integration and Wages," Research Papers 2019, Stanford University, Graduate School of Business.
    16. repec:eee:joecag:v:1-2:y:2013:i::p:35-49 is not listed on IDEAS
    17. Riccardo Fiorentini & Guido Montani, 2012. "The New Global Political Economy," Books, Edward Elgar Publishing, number 14443, April.
    18. Richard G. Harris & Peter E. Robertson & Jessica Y. Xu, 2011. "The International Effects of China’s Growth, Trade and Education Booms," The World Economy, Wiley Blackwell, vol. 34(10), pages 1703-1725, October.
    19. Kris James Mitchener & Se Yan, 2010. "Globalization, Trade & Wages: What Does History tell us about China?," NBER Working Papers 15679, National Bureau of Economic Research, Inc.
    20. Stefan Groot & Henri de Groot, 2011. "Wage inequality in the Netherlands: Evidence, trends and explanations," CPB Discussion Paper 186, CPB Netherlands Bureau for Economic Policy Analysis.
    21. Scherer, F. M., 2010. "The Dynamics of Capitalism," Working Paper Series rwp10-001, Harvard University, John F. Kennedy School of Government.

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