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Income Inequality in Advanced Economies: A Critical Examination of the Trade and Technology Theories and an Alternative Perspective

  • A Singh

This paper critically examines the trade and technology theories which dominate the large and growing literature on the determinants of changes in income inequality in advanced industrial countries during the 1980s and 1990s. Both theories, despite their rather different approaches to the subject are shown to have a common premise: advanced countries have experienced a fall in the relative demand for unskilled labour and an increase in that of skilled labour. This single explanation for both phenomena has been dubbed the 'transatlantic consensus'. This paper argues that this consensus, together with the associated theories based on trade with the Third World and skill biased technological progress respectively, is analytically as well as empirically unsatisfactory. It puts forward an alternative analysis which emphasises the role of institutions (e.g. unions, minimum wages), macro-economic conditions and social norms. It naturally arrives at rather different policy conclusions from those of the orthodox economists.

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Paper provided by ESRC Centre for Business Research in its series ESRC Centre for Business Research - Working Papers with number wp219.

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Date of creation: Dec 2001
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Handle: RePEc:cbr:cbrwps:wp219
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  1. Blanchflower, D. & Slaughter, M., 1998. "The Causes and Consequences of Changing Income Inequality: W(h)ither the Debate?," Papers 27, Centre for Economic Performance & Institute of Economics.
  2. Cooper, Richard, 2001. "Growth and Inequality: The Role of Foreign Trade and Investment," Scholarly Articles 3677049, Harvard University Department of Economics.
  3. David H. Autor & Lawrence F. Katz & Alan B. Krueger, 1998. "Computing Inequality: Have Computers Changed the Labor Market?," The Quarterly Journal of Economics, Oxford University Press, vol. 113(4), pages 1169-1213.
  4. Anthony B. Atkinson, 2000. "The Changing Distribution of Income: Evidence and Explanations," German Economic Review, Verein für Socialpolitik, vol. 1(1), pages 3-18, 02.
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