Working Paper: CEPR ID: DP1919
Authors: Joseph F. Francois; Douglas Nelson
Abstract: This paper highlights analytical reasons why we believe trade and technology are linked to wage movements in general, and how we should organize our examination of the recent episode of wage and employment erosion in the OECD countries. We start with a graphic tour through the mechanics of general equilibrium theory on trade and wages. This provides a set of implied relationships between wages and factor intensity trends that, together, provide a casual test of the consistency of posited relationships with actual trends. Numeric analysis and a review of the general equilibrium empirical literature follow the theoretical overview.
Keywords: trade; wages; unskilled wages; trade and employment
JEL Codes: F11; F12; J31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trade with low-wage countries (F16) | wage erosion for unskilled labor in high-wage countries (F66) |
| decrease in prices for unskilled labor-intensive goods (F66) | decline in wages for unskilled labor (F66) |
| decrease in prices for unskilled labor-intensive goods (F66) | increase in skilled labor wages (J39) |
| technological change (O33) | exacerbation of wage inequality by favoring skilled labor (F66) |
| trade policies (F13) | changes in factor prices (F16) |
| trade and technology (O33) | wage changes (J31) |