Working Paper: CEPR ID: DP2091
Authors: Jonathan Haskel; Matthew J. Slaughter
Abstract: The U.K. skill premium fell from the 1950s to the late 1970s and then rose very sharply. This paper examines the contributions to these relative wage movements of international trade and technical change. We first measure trade as changes in product prices and technical change as TFP growth. Then we relate price and TFP changes to a set of underlying factors. Among a number of results, we find that changes in prices, not TFP, were the major force behind the rise in inequality in the 1980s. We also find that although increased trade pressure has raised technical change, its effect on wage inequality was not quantitatively significant.
Keywords: trade; technology; wage inequality
JEL Codes: F1; J3; O3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Changes in product prices (D49) | Wage inequality (J31) |
| Total factor productivity (TFP) (O49) | Wage inequality (J31) |
| Price rises in skilled-intensive sectors (J24) | Increased wage inequality (J31) |
| Price falls in unskilled-intensive sectors (F66) | Increased wage inequality (J31) |
| Increased foreign price pressure (F31) | Induced technical change (O39) |
| Induced technical change (O39) | Wage inequality (J31) |
| Sector bias of price changes (E30) | Wage adjustments (J31) |
| Faster price growth in skilled-intensive sectors (O49) | Skilled wages rise relative to unskilled wages (J31) |
| Faster price growth in unskilled-intensive sectors (F66) | Skilled wages fall relative to unskilled wages (F66) |