Is there really no link between international trade and wage differentials?

Abstract

This article investigates empirically the relationship between international trade (in particular with non-OECD countries) and wage differentials of workers with different skills. We examine years from 1996 to 2005 in several countries and, whereas past studies (using data from previous years) had not detected any relevant relationship, we find a clean-cut positive effect of imports from non-OECD countries on differentials. In addition, we find evidence that technological change is having a polarization effect on wages.

Keywords:

• international trade
• wage differentials
• skills
• technological change
• globalization

JEL Classification:

• D31
• F16
• J31

Acknowledgements

I am grateful to Professor Casarosa for pointing me to the existence of the EU-KLEMS database. Comments from an anonymous referee improved the quality of the article.

Notes

¹ To further check the robustness of our results, we tried to run the regression using total imports from non-OECD countries: while this latter variable had still a positive effect on wage differentials, its magnitude was smaller. Finally, we tried to include both fuel/ore imports and nonfuel/ore imports as distinct variables: the former was not significant, implying that nonfuel imports is the variable truly affecting differentials.

² In fact, we estimated Equation 2(2) using logs, so that coefficients from Table 1 can be considered as elasticities.