Trade, Wages and Revolving Door Ideas

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.

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