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Global Production Sharing and Rising Inequality: A Survey of Trade and Wages

Listed author(s):
  • Robert Feenstra
  • Gordon Hanson

We argue that trade in intermediate inputs, or 'global production sharing,' is a potentially important explanation for the increase in the wage gap between skilled and unskilled workers in the U.S. and elsewhere. Using a simple model of heterogeneous activities within an industry, we show that trade in inputs has much the same impact on labor demand as does skill-biased technical change: both of these will shift demand away from low-skilled activities, while raising relative demand and wages of the higher skilled. Thus, distinguishing whether the change in wages is due to international trade, or technological change, is fundamentally an empirical rather than a theoretical question. We review three empirical methods that have been used to estimate the effects of trade in intermediate inputs and technological change on wages, and summarize the evidence for the U.S. and other countries.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8372.

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Date of creation: Jul 2001
Publication status: published as Choi, Kwan and James Harrigan (eds.) Handbook of International Trade. Basil Blackwell, 2003.
Handle: RePEc:nbr:nberwo:8372
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