NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Global Production Sharing and Rising Inequality: A Survey of Trade and Wages

Robert Feenstra, Gordon Hanson

NBER Working Paper No. 8372
Issued in July 2001
NBER Program(s):   ITI

We argue that trade in intermediate inputs, or 'global production sharing,' is a potentially important explanation for the increase in the wage gap between skilled and unskilled workers in the U.S. and elsewhere. Using a simple model of heterogeneous activities within an industry, we show that trade in inputs has much the same impact on labor demand as does skill-biased technical change: both of these will shift demand away from low-skilled activities, while raising relative demand and wages of the higher skilled. Thus, distinguishing whether the change in wages is due to international trade, or technological change, is fundamentally an empirical rather than a theoretical question. We review three empirical methods that have been used to estimate the effects of trade in intermediate inputs and technological change on wages, and summarize the evidence for the U.S. and other countries.

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Document Object Identifier (DOI): 10.3386/w8372

Published: Choi, Kwan and James Harrigan (eds.) Handbook of International Trade. Basil Blackwell, 2003.

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