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US Inequality in the 1980s: The Tokyo Round Trade Liberalization and the Swiss Formula

Author

Listed:
  • Andrew Greenland
  • James Lake
  • John Lopresti

Abstract

Against a backdrop of sharply rising inequality, the Tokyo Round of the GATT resulted in a 1.6 percentage point reduction in average US tariffs – larger than CUS-FTA, NAFTA, and the liberalization accompanying the granting of PNTR to China. We construct a novel IV based on the so-called “Swiss formula” that governed Tokyo Round tariff liberalization to provide the first evidence of its effects on imports and inequality. Instrumented tariff reductions explain 17% of the within-industry rise in income inequality between skilled and unskilled workers between 1979 and 1988. This effect is largest in more technology-intensive industries, suggesting a complementarity between trade liberalization and skill-biased technological change. We also show that tariff liberalization in upstream industries produced a shift away from labor more broadly and towards intermediate inputs. Finally, we show that policymakers dampened the observed impact of tariffs on inequality by assigning smaller tariff reductions to industries more reliant on low-skilled labor.

Suggested Citation

  • Andrew Greenland & James Lake & John Lopresti, 2024. "US Inequality in the 1980s: The Tokyo Round Trade Liberalization and the Swiss Formula," CESifo Working Paper Series 10983, CESifo.
    • Handle: RePEc:ces:ceswps:_10983
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp10983.pdf
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    References listed on IDEAS

    as
    1. Shushanik Hakobyan & John McLaren, 2016. "Looking for Local Labor Market Effects of NAFTA," The Review of Economics and Statistics, MIT Press, vol. 98(4), pages 728-741, October.
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    6. Andrew Greenland & John Lopresti & Peter McHenry, 2019. "Import Competition and Internal Migration," The Review of Economics and Statistics, MIT Press, vol. 101(1), pages 44-59, March.
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    More about this item

    Keywords

    tariffs; Tokyo Round; Swiss formula; inequality; skill biased technological change;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F66 - International Economics - - Economic Impacts of Globalization - - - Labor

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