Policy Implications of the Trade and Wages Debate
This paper examines the choice of policies to redistribute income in response to an increase in inequality caused by a rise in the differential wage paid to skilled labor compared to unskilled labor. The main issue is whether the appropriate policy response depends on the cause of the increased differential. In particular, should policies respond any differently if the rising differential is due to "trade" -shorthand for greater openness in global markets and/or greater participation in those markets by developing countries abundantly endowed with unskilled labor - or due to technological changes that have favored skilled labor over unskilled labor.
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