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A Survey of Trade and Wage Inequality: Anomalies, Resolutions, and New Trends

  • Yoshinori Kurokawa

This paper surveys recent studies on trade and wage inequality. We first introduce some trade-based explanations for increased wage inequality. There are, however, a number of criticisms of this line of thought based on the "trade-wage inequality anomaly," the "price-wage anomaly," and the small volume of trade. Mainly due to these criticisms, trade-based explanations for rising wage inequality have been limited in the economic literature. Rather, the primary explanations for wage inequality have been based on skill-biased technological change. Some trade models, however, have weakened the above criticisms, and more economists now argue that the effect of trade, though relatively small compared to that of technological change, is more significant than generally believed. Finally, we attempt to link new trends in inequality, such as job polarization and within-group inequality, to the trade and wage inequality literature.

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Paper provided by Economics, Graduate School of Humanities and Social Sciences, University of Tsukuba in its series Tsukuba Economics Working Papers with number 2010-007.

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Date of creation: Sep 2010
Date of revision:
Handle: RePEc:tsu:tewpjp:2010-007
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  1. Timothy J. Kehoe & Kim J. Ruhl, 2006. "How Important is the New Goods Margin in International Trade?," 2006 Meeting Papers 733, Society for Economic Dynamics.
  2. Wood, Adrian, 1995. "North-South Trade, Employment and Inequality: Changing Fortunes in a Skill-Driven World," OUP Catalogue, Oxford University Press, number 9780198290155.
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  4. Paul Segerstrom & Elias Dinopoulos, 1999. "A Schumpeterian Model of Protection and Relative Wages," American Economic Review, American Economic Association, vol. 89(3), pages 450-472, June.
  5. Robertson, Raymond, 2004. "Relative prices and wage inequality: evidence from Mexico," Journal of International Economics, Elsevier, vol. 64(2), pages 387-409, December.
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  7. Gordon H. Hanson & Ann Harrison, 1999. "Trade Liberalization and Wage Inequality in Mexico," ILR Review, Cornell University, ILR School, vol. 52(2), pages 271-288, January.
  8. Kurokawa, Yoshinori, 2006. "Skill Intensity Reversal and the Rising Skill Premium: Evidence from the U.S. and Mexico," MPRA Paper 14013, University Library of Munich, Germany.
  9. James Harrigan & Rita A. Balaban, 1999. "U.S. wages in general equilibrium: the effects of prices, technology and factor supplies, 1963-1991," Staff Reports 64, Federal Reserve Bank of New York.
  10. Matthew J. Lindquist, 2005. "Capital-Skill Complementarity and Inequality in Sweden," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(4), pages 711-735, December.
  11. Claudia Goldin & Lawrence F. Katz, 1998. "The Origins Of Technology-Skill Complementarity," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 693-732, August.
  12. Robert Feenstra & Gordon Hanson, 2001. "Global Production Sharing and Rising Inequality: A Survey of Trade and Wages," NBER Working Papers 8372, National Bureau of Economic Research, Inc.
  13. Yoshinori Kurokawa, 2009. "Variety-Skill Complementarity: A Simple Resolution of the Trade-Wage Inequality Anomaly," Tsukuba Economics Working Papers 2009-007, Economics, Graduate School of Humanities and Social Sciences, University of Tsukuba.
  14. Gary Burtless, 1995. "International Trade and the Rise in Earnings Inequality," Journal of Economic Literature, American Economic Association, vol. 33(2), pages 800-816, June.
  15. Borjas, George J & Ramey, Valerie A, 1994. "Time-Series Evidence on the," American Economic Review, American Economic Association, vol. 84(2), pages 10-16, May.
  16. Per Krusell & Lee E. Ohanian & JosÈ-Victor RÌos-Rull & Giovanni L. Violante, 2000. "Capital-Skill Complementarity and Inequality: A Macroeconomic Analysis," Econometrica, Econometric Society, vol. 68(5), pages 1029-1054, September.
  17. Eric A. Verhoogen, 2008. "Trade, Quality Upgrading, and Wage Inequality in the Mexican Manufacturing Sector," The Quarterly Journal of Economics, MIT Press, vol. 123(2), pages 489-530, 05.
  18. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555 Elsevier.
  19. Donald R. Davis, 1996. "Trade Liberalization and Income Distribution," NBER Working Papers 5693, National Bureau of Economic Research, Inc.
  20. Nathalie Chusseau & Michel Dumont & Jo�l Hellier, 2008. "Explaining Rising Inequality: Skill-Biased Technical Change And North-South Trade ," Journal of Economic Surveys, Wiley Blackwell, vol. 22(3), pages 409-457, 07.
  21. Berman, Eli & Bound, John & Griliches, Zvi, 1994. "Changes in the Demand for Skilled Labor within U.S. Manufacturing: Evidence from the Annual Survey of Manufactures," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 367-97, May.
  22. Zhu, Susan Chun & Trefler, Daniel, 2005. "Trade and inequality in developing countries: a general equilibrium analysis," Journal of International Economics, Elsevier, vol. 65(1), pages 21-48, January.
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