Article

Wage Differentials: Trade Openness and Wage Bargaining

Authors:
To read the full-text of this research, you can request a copy directly from the authors.

Abstract

We build a theoretical model that incorporates unionization in the labor market into a Heckscher-Ohlin-Samuelson (HOS) framework to in- vestigate the impact of unionization on the Stolper-Samuelson Theorem. To capture the American economy case, we assume that unskilled labor in the manufactured goods sector is unionized, and that sector is intensive in skilled labor, and that trade liberalization increases the relative price of manufactured goods. In the HOS model, trade liberalization induces a reallocation of production towards the sector that uses intensively the country's most abundant factor. The resulting change in relative labor de- mand impacts wage bargaining in the unionized sector, which, in turn, has a dampening eect on the Stolper-Samuelson eect. Moreover, wages of unionized workers are even less responsive to trade liberalization. Through traditional mandated-wages regressions, we show that skilled-wage dier- entials changes were less pronounced among more unionized sectors in the U.S. economy for the 1979-1990 period.

No full-text available

Request Full-text Paper PDF

To read the full-text of this research,
you can request a copy directly from the authors.

ResearchGate has not been able to resolve any citations for this publication.
Article
Full-text available
This paper seeks to review how globalization might explain the recent trends in real and relative wages in the United States. We begin with an overview of what is new during the last 10-15 years in globalization, productivity, and patterns of U.S. earnings. To preview our results, we then work through four main findings: First, there is only mixed evidence that trade in goods, intermediates, and services has been raising inequality between more- and less-skilled workers. Second, it is more possible, although far from proven, that globalization has been boosting the real and relative earnings of superstars. The usual trade-in-goods mechanisms probably have not done this. But other globalization channels--such as the combination of greater tradability of services and larger market sizes abroad--may be playing an important role. Third, seeing this possible role requires expanding standard Heckscher-Ohlin trade models, partly by adding insights of more recent research with heterogeneous firms and workers. Finally, our expanded trade framework offers new insights on the sobering fact of pervasive real-income declines for the large majority of Americans in the past decade.
Article
Full-text available
We develop an empirical framework to assess the importance of trade and technical change on the wages of production and nonproduction workers. Trade is measured by the foreign outsourcing of intermediate inputs, while technical change is measured by the shift towards high-technology capital such as computers. In our benchmark specification, we find that both foreign outsourcing and expenditures on high-technology equipment can explain a substantial amount of the increase in the wages of nonproduction (high-skilled) relative to production (low-skilled) workers that occurred during the 1980s. Surprisingly, it is expenditures on high-technology capital other than computers that are most important. These results are very sensitive, however, to our benchmark assumption that industry prices are independent of productivity. When we allow for the endogeneity of industry prices, then expenditures on computers becomes the most important cause of the increased wage inequality, and have a 50% greater impact than does foreign outsourcing.
Article
Full-text available
Economic growth in Europe and Asia and Latin America could have contri- buted in many different ways to lower wages and increased income inequality that the United States has been experiencing. One plausible model that links external product markets to internal labor markets is the Heckscher-Ohlin- amuelson general equilibrium model. This model operates over a time period long enough to allow complete detachment of workers and capital from their original sectors. According to this model the news of Asian growth is carried to the US labor markets by declines in prices of labor intensive tradables. These price reductions twist the labor demand curve, dictating lower real wages for unskilled workers who reside in communities with abundant unskilled labor but raising the wages for unskilled workers who are fortunate to live in communities inhabited mostly by skilled workers. US relative producer prices of labor-intensive tradables declined in the 1970s by about 30%. These product price declines are compatible in the long run with real wage reductions totalling almost 40% for unskilled workers. In the 1980s however, changes in US producer prices worked in favor of these low-wage workers, raising their equilibrium wages by about 20%. The sectoral bias of TFP growth did not favor low- or high-wage workers, but TFP changes did work strongly in favor of nonproduction workers and against production workers in the 1970s. If these TFP improvements had not generated any product price response, the TFP improvements in the 1970s call for a 100% increase in earnings of nonproduction workers and a 60% reduction in earnings of production workers.
Article
Full-text available
Recent discussions of the effects of globalization and technological change on U.S. wages have suffered from inappropriate or missing references to the basic international trade theorems: The Factor Price Equalization Theorem, the Stolper-Samuelson Theorem and the Samuelson Duality Theorem. Until the theory is better understood, and until the theory and the estimates are sensibly linked, the jury should remain out. This paper gives examples of the misuse of the international micro theory linking technological change and globalization to the internal labor market. This international micro theory serves as a foundation for a reexamination of the NBER Trade and Immigration Data Base that describes output, employment and investment in 450 4-digit SIC U.S. manufacturing sectors beginning in 1970. Estimates of the impact of technological change on income inequality are shown to vary widely depending on the form of the model and the choice of data subsets, but uniformly the estimates suggest that technological change reduced income inequality not increased it. But the data separation of workers into 'production' and 'non-production' workers has little association with skill levels, and these data probably cannot be used to study income inequality.
Article
Full-text available
The NEER Immigration, Trade, and Labor Markets Data Files were developed from public data sources to facilitate industry-based and area-based research on the effects of international trade and immigration on labor markets in the United States. The industry data files contain shipments, a shipments deflator, value added, employment, payroll, hours, real capital stock, imports, exports, unionization, and immigrant ratios for 450 four-digit (1972 Standard Industrial Classification) manufacturing industries. The primary source of the industry production and factor use data is the Annual Survey of Manufactures. The primary source of the international trade data is the defunct Bt,S Trade Monitoring System (1972 to 1981). which was extended to earlier and later years using U.S. Commodity Exports and Imports as Related to Output, U.S. Department of Commerce Official Statistics, and the Annual Survey of Manufactures. The primary source of the unionization data is the Current Population Survey (1973 to 1984), which cannot be extended to earlier years. The primary source of the immigrant ratio data is the Census of Population (1960, 1970, and 1980). The area data files contain information on immigrants in the work force by state and major SMSA from the Census of Population 1970 and 1980. The data are available fro. the author on floppy disk (Stata or ASCII format), computer tape (SAS format) or by electronic mail.
Article
We juxtapose the effects of trade and technology on employment in U.S. local labor markets between 1990 and 2007. Labor markets whose initial industry composition exposes them to rising Chinese import competition experience significant falls in employment, particularly in manufacturing and among non-college workers. Labor markets susceptible to computerization due to specialization in routine task-intensive activities experience significant occupational polarization within manufacturing and nonmanufacturing but no net employment decline. Trade impacts rise in the 2000s as imports accelerate, while the effect of technology appears to shift from automation of production activities in manufacturing towards computerization of information-processing tasks in non manufacturing.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
Book
Available in OSO: http://www.oxfordscholarship.com/oso/public/content/economicsfinance/9780199279166/toc.html
Book
This book is concerned with why unemployment is so high and why it fluctuates so wildly. It shows how unemployment affects inflation, and discusses whether full employment can ever be combined with price stability. It asks why some groups have higher unemployment rates than others. The book thus surveys in a clear, textbook fashion the main aspects of the unemployment problem. It integrates macroeconomics with a detailed micro-analysis of the labour market. it uses the authors' model to explain the puzzling post-war history of OECD unemployment and shows how unemployment and inflation are affected by systems of wage bargaining and unemployment insurance. For each issue it develops new relevant theory, followed by extensive empirical analysis. The authors are established experts in this field, and this book gives their definitive treatment. It is based largely on new research, but also incorporates the best of existing knowledge. The long `overview' chapter is accessible to any non-specialist with an elementary knowledge of economics. The rest of the book provides key elements for courses in macroeconomics and labour economics at advanced undergraduate and graduate levels, and will serve as a major source of reference for both scholars and students. The basic aim of the book, however, is to provide the basis for better policy. As the book shows, by learning from theory and experience, we can avoid the waste and misery of high unemployment.
Book
International trade accounts for only a small share of growing income inequality and labor-market displacement in the United States. Lawrence deconstructs the gap in real blue-collar wages and labor productivity growth between 1981 and 2006 and estimates how much higher these wages might have been had income growth been distributed proportionately and how much of the gap is due to measurement and technical factors about which little can be done. * While increased trade with developing countries may have played some part in causing greater inequality in the 1980s, surprisingly, over the past decade the impact of such trade on inequality has been relatively small. Many imports are no longer produced in the United States, and US goods and services that do compete with imports are not particularly intensive in unskilled labor. Rising income inequality and slow real wage growth since 2000 reflect strong profit growth, much of which may be cyclical, and dramatic income gains for the top 1 percent of wage earners, a development that is more closely related to asset-market performance and technological and institutional innovations rather than conventional trade in goods and services. The minor role of trade, therefore, suggests that any policy that focuses narrowly on trade to deal with wage inequality and job loss is likely to be ineffective. Instead, policymakers should (a) use the tax system to improve income distribution and (b) implement adjustment policies to deal more generally with worker and community dislocation.
Article
Standard economic analysis predicts that increased U.S. trade with unskilled labor–abundant countries should reduce the relative wages of U.S. unskilled labor, but empirical studies in the 1990s found only a modest effect. Has the situation changed in this decade, given the surge in imports from very low wage countries? In fact, most of this increase has been in skill-intensive goods such as computers, so that one would expect little additional impact on U.S. relative wages. However, developing countries appear to be specializing in unskilled labor–intensive niches within these industries. If so, the effect on wage inequality could still be significant. The paper develops a model and a numerical example showing that when developing countries can take over the unskilled labor–intensive portions of vertically specialized industries, the consequences can closely resemble the textbook effect. But determining the actual impact will require more finely disaggregated factor content data than are currently available.
Article
The general equilibrium analysis of many important labor market issues is very different in an economy that is open to international trade than an economy (like the US in the 1950s) in which trade is not very important. Despite the fact that individual national economies have become increasingly interdependent over the last few decades, labor economists have generally used a closed economy framework to attack many important issues (such as the determinants of the distribution of earnings) that should, in fact, be approached very differently in an open economy setting. A major task of this paper is the exposition of the correct approach to labor market analysis for the case in which the focus economy is open rather than closed. Perhaps the most important implication of neoclassical trade theory for labor economics is that, under certain conditions, the skill distribution of wages in a particular economy is unaffected by the skill distribution of the supply of labor in that economy. Our review of the trade literature focuses on the question of the degree to which these conditions are likely to be satisfied. Our general conclusion — inspired more from the empirical than the purely theoretical branch of the trade field — is that the correct specification of the behavior of the labor market is a blend of the closed and open models.
Article
A simple supply and demand framework is used to analyze changes in the U. S. wage structure from 1963 to 1987. Rapid secular growth in the demand for more-educated workers, “more-skilled” workers, and females appears to be the driving force behind observed changes in the wage structure. Measured changes in the allocation of labor between industries and occupations strongly favored college graduates and females throughout the period. Movements in the college wage premium over this period appear to be strongly related to fluctuations in the rate of growth of the supply of college graduates.
Article
This paper analyzes the impact of business cycle fluctuations on a labor market segmented into a unionized primary sector and a “competitive” secondary sector. Either permanent or temporary changes in real aggregate demand are shown to widen the intersectoral wage differential in recession and, under reasonable specifications of key parameters, to cause greater fluctuations of primary-sector employment than secondary-sector employment. This pattern agrees with the stylized facts of the U. S. economy.
Article
In recent years many economists have analyzed whether international trade has contributed to rising U.S. wage inequality by changing relative product prices. In this paper I survey the findings of nine product-price' studies which together demonstrate how the methodology of product-price studies has evolved. I then synthesize the findings of these nine studies and draw two main conclusions. The first conclusion is that this literature has a refined set of empirical strategies for applying the Stolper-Samuelson theorem to the data from which important methodological lessons can be learned. The second main conclusion is that despite the methodological progress that has been made, research to date still has fundamental limitations regarding the key question of how much international trade has contributed to rising wage inequality. Most importantly, more work needs to link exogenous forces attributable to international trade to actual product-price changes.
Article
This paper explores a number of the unresolved issues posed by the debate on the social saving of railroads. The final section includes a brief summary of the main findings of the new economic history of transportation.
Article
This paper provides a survey on studies that analyze the macroeconomic effects of intellectual property rights (IPR). The first part of this paper introduces different patent policy instruments and reviews their effects on R&D and economic growth. This part also discusses the distortionary effects and distributional consequences of IPR protection as well as empirical evidence on the effects of patent rights. Then, the second part considers the international aspects of IPR protection. In summary, this paper draws the following conclusions from the literature. Firstly, different patent policy instruments have different effects on R&D and growth. Secondly, there is empirical evidence supporting a positive relationship between IPR protection and innovation, but the evidence is stronger for developed countries than for developing countries. Thirdly, the optimal level of IPR protection should tradeoff the social benefits of enhanced innovation against the social costs of multiple distortions and income inequality. Finally, in an open economy, achieving the globally optimal level of protection requires an international coordination (rather than the harmonization) of IPR protection.
Article
In this paper, we propose an alternative approach under which to examine the source of the increased wage gap between skilled and unskilled workers in US manufacturing. Rather than imposing the assumptions inherent in a given structural form, we posit a long-run equilibrium relationship between international trade, technology, and the wage premium using a vector error-correction model. We first test for the existence of a long-run relationship using cointegration tests. If a cointegrating relationship is found, we then conduct tests on the direction of the long-run relationship and of Granger causality. We apply our approach to each two-digit and four-digit SIC industry and find evidence in support of international trade being an important source of the wage gap. Our results suggest that it is premature to dismiss international trade as a possible suspect behind the rising wage premium. Copyright © 2006 The Authors; Journal compilation © 2007 Blackwell Publishing Ltd.
Article
We review the 'skill-biased technological change (SBTC) versus North-South trade (NST)' debate in order to explain widening wage inequality between skilled and unskilled workers. The traditional explanations based on exogenous SBTC and on the North-South Heckscher-Ohlin-Samuelson approach, as well as the early estimates that diagnosed a clear prevalence of the former, are firstly exposed and discussed. A presentation is then made of the recent theoretical literature that endogenizes SBTC, introduces new channels of impacts from NST, and combines both explanations. Finally, the current estimates show that (i) both explanations are relevant, (ii) their impacts differ according to industries and countries, (iii) outsourcing is the main vector of impact from NST and (iv) SBTC and NST interact. Copyright © 2008 The Authors Journal compilation © 2008 Blackwell Publishing Ltd.
Article
Productivity growth in virtually all west European countries exceeded that of the United States throughout the period 1950 to 1995. Since then American productivity performance has strengthened and that of the EU has weakened. The most important reason is contrasting experiences with Information and Communications Technology (ICT). The article argues that this may reflect a failure of European countries to update their ‘social capability’ to the requirements of a new technological epoch and points in particular to weaknesses in human capital formation and to excessive employment protection as obstacles to rapid realization of the productivity potential of ICT.
Article
This essay discusses the effect of technical change on wage inequality. I argue that the behavior of wages and returns to schooling indicates that technical change has been skill-biased during the past sixty years. Furthermore, the recent increase in inequality is most likely due to an acceleration in skill bias. In contrast to twentieth-century developments, much of the technical change during the early nineteenth century appears to be skill-replacing. I suggest that this is because the increased supply of unskilled workers in the English cities made the introduction of these technologies profitable. On the other hand, the twentieth century has been characterized by skill-biased technical change because the rapid increase in the supply of skilled workers has induced the development of skill-complementary technologies. The recent acceleration in skill bias is in turn likely to have been a response to the acceleration in the supply of skills during the past several decades.
Article
Over the past 25 years, the US and the UK experienced sharp increases in wage inequality and rapid deunionization. We argue that these two phenomena are related, and that skill-biased technical change has been an important factor in deunionization as well as in the rise in inequality. Skill-biased technical change causes deunionization because it increases the outside option of skilled workers, undermining the coalition among skilled and unskilled worker in support of unions. Our approach implies that although deunionization is not the underlying cause of the increase in inequality, it amplifies the direct effect of skill-biased technical change by removing the wage compression imposed by unions. We also show that deunionization may happen inefficiently.
Article
To gauge the effect of international trade on the rising US skill premium, the paper analyzes the sector bias of price changes induced by changes in US tariffs and transportation costs. It is found that, in both the 1970s and 1980s, cuts in tariffs and transportation cost levels were concentrated in unskilled-intensive sectors. Despite this suggestive evidence, the authors estimate that price changes induced by tariffs or transportation costs mandated a rise in inequality that was mostly statistically insignificant. Thus, they do not find strong evidence that falling tariffs and transport costs, working through price changes, mandated rises in inequality. Copyright Blackwell Publishing Ltd 2003.
Article
For some time now there has been con- siderable skepticism about the ability of comparative cost theory to explain the ac- tual pattern of international trade. Neither the extensive trade among the industrial countries, nor the prevalence in this trade of two-way exchanges of differentiated prod- ucts, make much sense in terms of standard theory. As a result, many people have con- cluded that a new framework for analyzing trade is needed.' The main elements of such a framework-economies of scale, the pos- sibility of product differentiation, and im- perfect competition-have been discussed by such authors as Bela Balassa, Herbert Grubel (1967,1970), and Irving Kravis, and have been "in the air" for many years. In this paper I present a simple formal analysis which incorporates these elements, and show how it can be used to shed some light on some issues which cannot be handled in more conventional models. These include, in particular, the causes of trade between economies with similar factor endowments, and the role of a large domestic market in encouraging exports. The basic model of this paper is one in which there are economies of scale in pro- duction and firms can costlessly differenti- ate their products. In this model, which is derived from recent work by Avinash Dixit and Joseph Stiglitz, equilibrium takes the form of Chamberlinian monopolistic com- petition: each firm has some monopoly power, but entry drives monopoly profits to zero. When two imperfectly competitive economies of this kind are allowed to trade, increasing returns produce trade and gains from trade even if the economies have iden- tical tastes, technology, and factor endow- ments. This basic model of trade is pre- sented in Section I. It is closely related to a model I have developed elsewhere; in this paper a somewhat more restrictive formula- tion of demand is used to make the analysis in later sections easier. The rest of the paper is concerned with two extensions of the basic model. In Sec- tion II, I examine the effect of transporta- tion costs, and show that countries with larger domestic markets will, other things equal, have higher wage rates. Section III then deals with "home market" effects on trade patterns. It provides a formal justifica- tion for the commonly made argument that countries will tend to export those goods for which they have relatively large domestic markets. This paper makes no pretense of general- ity. The models presented rely on extremely restrictive assumptions about cost and util- ity. Nonetheless, it is to be hoped that the paper provides some useful insights into those aspects of international trade which simply cannot be treated in our usual models.
Trade and labor market outcomes Advances in Economics and Econometrics: Theory and Application
  • E Helpman
  • O Itskhoki
  • S Redding
Helpman, E., Itskhoki, O., & Redding, S. (2013). Trade and labor market outcomes. In Acemoglu, D., Arellano, M., & Dekel, E., editors, Advances in Economics and Econometrics: Theory and Application. Cambridge University Press, Cambridge. Tenth World Congress, Volume II: Applied Economics.
Unions, norms, and the rise in U
  • B Western
  • J Rosenfled
Western, B. & Rosenfled, J. (2011). Unions, norms, and the rise in U.S. American Sociological Review, 76:513-537.
Globalization, American wages and inequality, past, present and future. Working Paper 279, Economic Policy Institute
  • J Bivens
Bivens, J. (2007). Globalization, American wages and inequality, past, present and future. Working Paper 279, Economic Policy Institute, Washington, DC.