Economics Dictionary of ArgumentsHome
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| Wage gap: The wage gap in economics refers to the difference in earnings between different groups of workers. Specifically between skilled and unskilled labor, it measures how much more (or less) highly skilled workers earn compared to those with lower skills or less education. This gap is influenced by factors like technology, globalization, labor market institutions, and the relative supply and demand for different skill sets. See also Skilled labour, Labour, Wages, Relative wage, International trade._____________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 Wage Gap - Dictionary of Arguments
Feenstra I 4-3 Wage Gap/Feenstra: The basic facts concerning wage movements in the United States are well understood.* For full-time U.S. workers between 1979 and 1995, the real wages of those with 12 years of education fell by 13.4% and the real wages of those with less than 12 years of education fell by 20.2%. During the same period, the real wages of workers with 16 or more years of education rose by 3.4%, so that the wage gap between less-skilled and more-skilled workers increased dramatically.** Feenstra I 4-6 What factors could lead to an outward shift in the relative demand for skilled labor in the economy? One explanation suggested by the two-sector model is that the output of skill-intensive sectors have risen relative to those of unskilled-labor intensive sectors: this would certainly increase the relative demand for skilled labor. However, the evidence for the U.S. is that this sort of sectoral change in outputs did not occur. Rather, the bulk of the increase in the relative demand for skilled labor occurred within the manufacturing industries, and not by shifts in labor between industries. Some evidence on this within versus between industry distinction is (…) taken from Berman, Bound and Griliches (1994)(2). The conclusion suggested by Berman, Bound and Griliches (1994)(2) is that trade cannot be a dominant explanation for the wage and employment shifts, because the between industries movements are smaller than the within industry movements. This conclusion was reinforced by consideration of the price movements. If the Stolper-Samuelson Theorem holds, then the relative price of skilled labor in the U.S. would increase if the relative price of skill-intensive goods also increased, e.g. the price of computers rose relative to the price of apparel. In fact, this did not occur during the 1980s.*** Feenstra I 4-8 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. 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. >Relative wage. Feenstra I 4-10 Some preliminary evidence which suggests that trade shifts the composition of activity within an industry is provided by Bernard and Jensen (1997)(4), who do the same decomposition as Berman, Bound and Griliches(2) but with plant-level data rather than industry-level data. International trade: The results of Bernard and Jensen provide prima facie evidence that trade has had an impact on factor demand and wages, through shifting the demand for labor within industries. >Skilled labour. * For a detailed discussion, see Katz and Autor (1999)(1). ** Only the highly skilled have had large real-wage gains. For the 1979-1995 period, real wages for those with 18 or more years of education rose by 14.0% and for those with 16 to 17 years of education rose by only 1.0%. *** But it did occur during the 1970s, in what Leamer (1998)(3) has called the “Stolper-Samuelson decade.” 1. 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. 2. Berman, Eli, John Bound, and Zvi Griliches, 1994, “Changes in the Demand for Skilled Labor within U.S. Manufacturing: Evidence from the Annual Survey of Manufactures, Quarterly Journal of Economics, 104, 367-398. 3. Leamer, Edward E., 1998, “In Search of Stolper-Samuelson Linkages between International Trade and Lower Wages,” in Susan M. Collins, ed., Imports, Exports, and the American Worker, Washington, D.C.: Brookings Institution Press, 141-203. Reprinted in Edward E. Leamer, ed. 2001, International Economics, New York: Worth Publishers, 204-231. 4. Bernard, Andrew B. and J. Bradford Jensen, 1997, “Exporters, Skill Upgrading, and the Wage Gap,” Journal of International Economics, 42(1/2), February, 3-32._____________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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