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

In: The Impact of International Trade on Wages

  • Mary E. Lovely
  • J. David Richardson

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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This chapter was published in:
  • Robert C. Feenstra, 2000. "The Impact of International Trade on Wages," NBER Books, National Bureau of Economic Research, Inc, number feen00-1, 07.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 6197.
    Handle: RePEc:nbr:nberch:6197
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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    Web page: http://www.nber.org
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    1. 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.
    2. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
    3. 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.
    4. Lawrence F. Katz & Lawrence H. Summers, 1989. "Can Interindustry Wage Differentials Justify Strategic Trade Policy?," NBER Chapters, in: Trade Policies for International Competitiveness, pages 85-124 National Bureau of Economic Research, Inc.
    5. Baldwin, Robert E & Cain, Glen C, 1997. "Shifts in US Relative Wages: The Role of Trade, Technology and Factor Endowments," CEPR Discussion Papers 1596, C.E.P.R. Discussion Papers.
    6. 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.
    7. William T. Dickens & Lawrence F. Katz, 1986. "Interindustry Wage Differences and Industry Characteristics," NBER Working Papers 2014, National Bureau of Economic Research, Inc.
    8. Grubel, Herbert G & Lloyd, P J, 1971. "The Empirical Measurement of Intra- Industry Trade," The Economic Record, The Economic Society of Australia, vol. 47(120), pages 494-517, December.
    9. Feenstra, R.C. & Hanson, G.H., 1995. "Foreign Investment, Outsourcing and Relative Wages," Papers 95-14, California Davis - Institute of Governmental Affairs.
    10. Abraham, Katharine G & Farber, Henry S, 1987. "Job Duration, Seniority, and Earnings," American Economic Review, American Economic Association, vol. 77(3), pages 278-97, June.
    11. Robert Gibbons & Lawrence F. Katz, 1989. "Does Unmeasured Ability Explain Inter-Industry Wage Differentials?," NBER Working Papers 3182, National Bureau of Economic Research, Inc.
    12. George J. Borjas, 1987. "Self-Selection and the Earnings of Immigrants," NBER Working Papers 2248, National Bureau of Economic Research, Inc.
    13. Noel Gaston & Daniel Trefler, 1994. "Protection, trade, and wages: Evidence from U.S. manufacturing," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 47(4), pages 574-593, July.
    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. Feenstra, Robert C & Hanson, Gordon H, 1996. "Globalization, Outsourcing, and Wage Inequality," American Economic Review, American Economic Association, vol. 86(2), pages 240-45, May.
    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. Baltagi, Badi H., 1985. "Pooling cross-sections with unequal time-series lengths," Economics Letters, Elsevier, vol. 18(2-3), pages 133-136.
    18. 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.
    19. 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.
    20. 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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