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Quantifying the Impact of Trade on Wages: The Role of Nontraded Goods

Author/Editor: Tokarick, Stephen
Authorized for Distribution: November 1, 2002
Electronic Access: Free Full Text (PDF file size is 964KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: This paper uses an applied general equilbrium model to decompose the effects of changes in trade and technology-related variables on wages of skilled and unskilled labor between 1982 and 1996 in the United States. The results indicate that trade-related variables (tariff cuts, improvement in the terms of trade, and the increase in the trade deficit) had little impact on the widening wage gap. Also, changes in total factor productivity had a small effect on relative wages. The major factor behind the rise in the skilled wage relative to the unskilled wage was differential rates of growth in skill-biased technical change across sectors. The paper also highlights the role that nontraded goods play in explaining the wage gap. Finally, the paper presents estimates of the effect of trade on wages by calculating what wage rates would be under autarky. The results show that expanding trade could actually reduce wage inequality, rather than increase it. The welfare costs to the U.S economy of moving to autarky (using 1996 as a base) are about 6 percent of GDP.
Series: Working Paper No. 02/191
Subject(s): Trade | Wages | Labor | Economic models
Author's keyword(s): Trade | Wages | General Equilibrium Models
    Published:   November 1, 2002        
    ISBN/ISSN:   1934-7073   Format:   Paper
    Stock No:   WPIEA1912002   Pages:   31
    Price:   US$15.00
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