U.S. Trade with Developing Countries and Wage Inequality
By Jeffrey D. Sachs and Howard J. Shatz
Source: The American Economic Review , May, 1996, Vol. 86, No. 2, Papers and Proceedings of the Hundredth and Eighth Annual Meeting of the American Economic Association San Francisco, CA, January 5-7, 1996 (May, 1996), pp. 234-239
Published by: American Economic Association Stable URL: http://www.jstor.com/stable/2118129
Since the mid-to-late 1970's, wage inequality between low- and highly educated workers has widened markedly. The wage premium to a college education compared with a high- school education has increased by some 20 percentage points (see George J. Borjas and Valerie A. Ramey [1994] for recent esti- mates). Part of the explanation seems to lie with a slowdown in the growth of supply of highly educated workers in the 1980's. An- other part seems to lie with a demand shift toward educated workers.
Two hypotheses have been advanced to ac- count for the alleged demand shift. The first holds that technological change has been biased in favor of high-education workers. The second holds that growing international trade with low-wage countries has shifted labor- market demand in the United States away from low-educated workers, as the United States increasingly imports goods produced by such workers from low-wage countries.