Wage inequality, technology and trade: 21st century evidence

Abstract

This paper describes and explains some of the principal trends in the wage and skilldistribution in recent decades. There have been sharp increases in wage inequality across theOECD, beginning with the US and UK at the end of the 1970s. A good fraction of thisinequality growth is due to technology-related increases in the demand for skilled workersoutstripping the growth of their supply. Since the early 1990s, labour markets have becomemore polarized with jobs in the middle third of the wage distribution shrinking and those inthe bottom and top third rising. I argue that this is because computerization complements themost skilled tasks, but substitutes for routine tasks performed by middle wage occupationssuch as clerks, leaving the demand for the lowest skilled service tasks largely unaffected.Finally, I argue that technology is partly endogenous, for example it has been spurred bytrade with China. Thus, trade does matter for changes in the labour market through inducingfaster technical change rather than just through the conventional Heckscher-Ohlinmechanism