Working Paper: NBER ID: w2739
Authors: Lawrence F. Katz; Lawrence H. Summers
Abstract: This paper examines the relationship between labor market imperfections and trade policies. The available evidence suggests that pervasive industry wage differentials of up to 20 percent remain even after controlling for differences in observed measures of workers' skill and the effects of unions. Theoretical analysis indicates that given non-competitive wage differentials of this magnitude policies directed at encouraging employment in high-wage sectors could significantly enhance allocative efficiency. For the United States and other developed countries, such policies are more likely to involve export promotion than import substitution. Increased international trade flows (at least through 1984) have been associated with increased employment in high-wage U.S. manufacturing industries relative to low-wage U.S. manufacturing industries.
Keywords: interindustry wage differentials; strategic trade policy; labor market imperfections; allocative efficiency
JEL Codes: F12; J31; L52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| interindustry wage differentials (J31) | trade policies (F13) |
| interindustry wage differentials (J31) | allocative efficiency improvements (D61) |
| trade policies aimed at high-wage sectors (F68) | economic welfare (D69) |
| reducing imports (F10) | economic welfare (D69) |
| expanding employment in export sectors (E69) | economic welfare (D69) |
| interindustry wage differentials (J31) | trade patterns (F10) |