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Globalization and Wages: A Tale of Two Perspectives

Authors:
Publication Date:
Jan 1998
Project Programs:
Future of Work

This paper aims to provide an overview of recent research on the causes of rising wage inequality - particularly the rising skill premium - in the United States and other countries. I argue that most recent research has used one of two methodologies: the "labour" approach or the "trade" approach. These two approaches are distinguished by their modelling of the national labour-demand schedule: from the labour perspective this schedule slopes downward everywhere, but from the trade perspective it has infinitely-elastic segments. These different demand schedules imply very different empirical strategies for analyzing the causes of rising inequality. Finally, I speculate on how likely a "protectionist backlash" is in response to rising inequality. I argue that, unfortunately for proponents of free trade, such a backlash is already underway - particularly with respect to setting the terms of trade-policy debate in the United States and other countries

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