The Wage and Unemployment Impacts of Trade Adjustment

Globalization, Product Differentiation and Wage Inequality

“…Bernhofen (2001) extends this framework to allow for exogenous product differentiation, and shows that it also generates intraindustry trade in differentiated products even in the absence of increasing returns to scale, and irrespective of whether competition is Cournot or Bertrand. 4 Like in the current paper, but in a closed economy setting, Lin and Saggi (2002) assume that product differentiation is costly and show that it is affected by strategic interaction between producers. By focusing on a single industry, 3 An integrated version of these two models, commonly referred to as the Chamberlin-Heckscher-Ohlin model, relaxes this assumption (Helpman, 1981;Helpman and Krugman, 1985).…”

“…The theory we propose contributes to reconcile a number of salient, but as yet not fully connected stylized facts, which together remain puzzling in the light of the Heckscher-Ohlin and intraindustry trade theories. While a significant proportion of trade flows is intraindustry in nature, many trade liberalization episodes were followed by an increase in wage inequality between skilled and unskilled workers (Greenaway and Nelson, 2001;Bastos and Silva, 2008). Furthermore, this increase in inequality was not specific to skillabundant nations (Goldberg and Pavcnik, 2007).…”

“…However, its implications for the effect on trade on relative factor rewards are similar to those of the traditional trade theory, and rely on inter-sectoral reallocations of resources due to comparative advantage. 4 Several authors have also extended the reciprocal dumping framework by including unionized labor markets in order to study wage responses to trade liberalization in a partial equilibrium setting (see, e.g., Naylor, 1998Naylor, , 1999 however, this framework is not suited to examine general equilibrium interactions between goods markets and factor markets, a fact that is considered to be at the root of the relatively minor role thus far played by oligopoly theory in international trade (Neary, 2003(Neary, , 2009(Neary, , 2010.…”

Redistribution of Trade Gains in the Presence of Firm and Worker Heterogeneity

“…However, the investigation of trade unions’ behaviour in an open economy setting is far from new. In some corresponding studies, which have been reviewed in a survey article by Bastos and Silva (), the impact of trade openness on the unions’ wage demands is analysed in an oligopolistic competition framework. As a result, trade liberalisation affects the elasticity of product demand (and hence the degree of product market competition) which in turn influences the wage setting of the union.…”

The Inequality Story in Latin America and the Caribbean: Searching for an Explanation

“…Tradables sector includes primary and manufacturing; non-tradable low-wage sector includes construction, hotels and restaurants, public administration, wholesale retail, and private households; non-tradable high-wage sector includes all other services. Low skilled is up to incomplete secondary education and high skilled completes secondary or more heightened by the "trade and wages" debate, where lower prices of unskilled labor-intensive products were advanced as one explanation for the decline in the relative wage of unskilled workers in advanced, skill-abundant countries (Silva and Bastos 2008). The underlying argument was based on the Stolper-Samuelson theorem, which implies that trade liberalization in countries where unskilled labor is relatively scarce will lead to a fall in both the relative price of unskilled laborintensive imports and the relative return to unskilled labor, and therefore to an increase in wage inequality as well (Falvey et al 2010).…”