Economics Dictionary of ArgumentsHome
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| Relative wage: In economics, relative wage refers to the comparison of wages between different groups of workers, often expressed as a ratio. For instance, the wage of skilled workers compared to unskilled workers, or wages in one industry versus another. It's crucial for understanding income inequality, labor market dynamics, and how trade or technological changes can affect different segments of the workforce. See also Wages, Labour, Skilled labour._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Robert C. Feenstra on Relative Wage - Dictionary of Arguments
Feenstra I 4-1 Relative Wage/Feenstra: Since the early 1980s there has been a marked change in the pattern of wage payments in the United States: the wage of skilled relative to unskilled workers experienced a sustained increase, that continued through the 1990s. A similar pattern was observed in other countries. This led to a great deal of research on the possible causes of the change in relative wages.* From the material we have already covered, we can identify three methods to determine whether the change in relative wages is due to international trade. 1) First, we could estimate a GDP or cost function for the U.S. economy, or for specific industries, and compute the Stolper-Samuelson effect of a change in traded goods prices. >Gross domestic Product (GDP). 2) Second, we could proceed as in the Heckscher-Ohlin-Vanek (HOV) model and compute the change in the factor content of trade and associated changes in factor prices. Theoretically, this second approach is justified by Deardorff and Staiger (1988)(1), who show that: (4.1) (w2 - w1)(F2 - F1) ≤0 where wi are equilibrium wages in a country in two equilibria i=1,2, and Fi is the factor-content of exports for that country. This equation is interpreted as saying that a higher content of imports for some factor k, Fk2 < Fk1 <0 so (Fk2 - Fk1) <0, will tend to be associated with a falling wage for that factor, (wk2 – wk1) <0. The same would be true for the direct import of a factor, as with immigration. Feenstra I 4-2 Among the most careful assessment of these effects for the United States, Borjas, Freeman and Katz (1997(13), p. 62) find that immigration into the U.S. during 1980-1995 accounts for about one-quarter to one-half of the decline in the relative wages of high-school dropouts. The increasing factor content of imports from less-developed countries also has some effect on reducing the wages of high-school dropouts, but by less than immigration. Both channels have only a small impact on the wages of more highly-educated workers. Note the similarity between (4.1), which refers to a comparison over time, and equation (2.19) (from Helpman, 1984a)(13), which referred to a comparison across countries. This suggests that all the observations we have made about testing the HOV [Heckscher-Ohlin-Vanke] model apply equally well to implementing formula (4.1): the results of a factor-content approach when applied over time will depend on the assumptions about technology (which year or country’s technology matrix is used); assumptions on tastes; and also whether or not there are traded intermediate inputs.** For these reasons, there is considerable controversy about the suitability of using a factor-content approach to infer the effects of trade on wages.*** Feenstra I 4-8 Relative wage/Feenstra: The price movements (…) combined with the shift in relative demand towards skilled labor within industries (…), led many economists to conclude that international trade could not be a substantial explanation for the rise in relative wages. >Wage gap/Feenstra. Instead, they have looked to the introduction of skill-biased technological changes, such the introduction of computers, to provide the explanation. Feenstra: But should we really rule out trade? It may be true that the Heckscher-Ohlin model does not provide the explanation for the change in wages during the 1980s and 1990s. >International trade, >Heckscher-Ohlin model. But surely trade can have an important impact on the structure of production, and demand for labor, within industries as well. This is certainly the case when we introduce trade in intermediate inputs: as we shall see, trade can then affect labor demand within an industry. * See the surveys by Feenstra (1998)(2), Freeman (1995)(3), Johnson and Stafford (1999)(4), Katz and Autor (1999)(5), Richardson (1995)(6) and Wood (1995)(7), and the volumes by Bhagwati and Kosters (1994)(8), Cheng and Kierzkowski (2001)(9), Collins (1998)(10) and Feenstra (2000)(11). This chapter draws upon Feenstra and Hanson (2003)(12). ** Note that Staiger (1986)(14) argues that traded intermediate inputs should not be included in the calculation of factorcontents in the bilateral test of Helpman (1984a)(13), so their treatment in applying the factor-content approach over time is open to question. *** See Deardorff (2000)(15), Krugman (2000)(16), Leamer (2000)(17), and Panagariya (2000)(18). 1. Deardorff, Alan V., Staiger, Robert W. (1988/02)."An interpretation of the factor content of trade." Journal of International Economics 24(1-2): 93-107. 2. Feenstra, Robert C., 1998, “Integration and Disintegration in the Global Economy,” Journal of Economic Perspectives, Fall, 31-50. 3. Freeman, Richard B., 1995, “Are Your Wages Set in Beijing?” Journal of Economic Perspectives, 9, Summer, 15-32. 4. Johnson, George and Frank Stafford, 1999, “The Labor Market Implications of International Trade,” in Orley Ashenfelter and David Card, eds., Handbook of Labor Economics, Vol. 3B, Amsterdam: Elsevier, 2215-2288. 5. Katz, Lawrence F. and David Autor, 1999, “Changes in the Wage Structure and Earnings Inequality,” in Orley Ashenfelter and David Card, eds., Handbook of Labor Economics, Vol. 3A, Amsterdam: Elsevier, 1463-1555 6. Richardson, J. David, 1995, “Income Inequality and Trade: How to Think, What to Conclude”, Journal of Economic Perspectives, 9(3), Summer, 33-56. 7. Wood, Adrian, 1995, “How Trade Hurt Unskilled Workers,” Journal of Economic Perspectives, 9(3), Summer, 57-80. 8. Bhagwati, Jagdish and Marvin H. Kosters, eds., 1994, Trade and Wages: Leveling Wages Down? Washington, D.C.: American Enterprise Institute. 9. Cheng, Leonard and Henryk Kierzkowski, eds., 2001, Globalization of Trade and Production in South-East Asia, Kluwer Academic Press, New York, forthcoming. 10. Collins, Susan M., ed. (1998) Imports, Exports, and the American Worker, Washington, D.C.: Brookings Institution Press. 11. Feenstra, Robert C., ed., 2000, The Impact of International Trade on Wages, Chicago: University of Chicago Press, 171-193. 12. Feenstra, Robert C. and Gordon H. Hanson, 2003, “Global Production Sharing and Rising Inequality: A Survey of Trade and Wages,” in Kwan Choi and James Harrigan, eds., Handbook of International Trade, London: Basil Blackwell. 13. Helpman, Elhanan, 1984a, “The Factor Content of Foreign Trade,” Economic Journal, 94, 84-94. 14. Staiger, Robert, 1986, “Measurement of the Factor Content of Foreign Trade with Traded Intermediate Goods,” Journal of International Economics, 21, 361-368. 15. Deardorff, Alan V., 2000, “Factor Prices and the Factor Content of Trade Revisited: What’s the Use?”, Journal of International Economics, 50, 73-90. 16. Krugman, Paul, 2000, “Technology, Trade and Factor Prices,” Journal of International Economics, 50(1), 51-72. 17. Leamer, Edward E., 2000, “What’s the Use of Factor Contents?” Journal of International Economics, 50, 17-50. 18. Panagariya, Arvind, 2000, “Evaluating the Factor-Content Approach to Measuring the Effect of Trade on Wage Inequality?”, Journal of International Economics, 50, 91-116._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Feenstra I Robert C. Feenstra Advanced International Trade University of California, Davis and National Bureau of Economic Research 2002 |
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