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The Choice of Structural Model in Trade-Wages Decompositions

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Abrego, Lisandro
Whalley, John

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Abstract

This paper uses a calibrated general equilibrium model to decompose observed wage changes from trade and technology shocks into portions attributable to each source. It highlights some difficulties with the numerical performance of widely used theoretical trade structures. For small economies, the Heckscher-Ohlin model reveals specialization problems unless the price changes accompanying trade shocks are small. It can also yield strikingly different decompositions of the same wage change. A differentiated-goods model removes specialization problems and accommodates large price changes, but introduces demand-side responses greatly reducing the effect of trade on wages, and performs implausibly with sector-biased technical change. Copyright 2000 by Blackwell Publishing Ltd.

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Article provided by Blackwell Publishing in its journal Review of International Economics.

Volume (Year): 8 (2000)
Issue (Month): 3 (August)
Pages: 462-77
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Handle: RePEc:bla:reviec:v:8:y:2000:i:3:p:462-77

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Joseph F. Francois & Douglas Nelson, 1998. "Trade, Technology, and Wages: General Equilibrium Mechanics," Tinbergen Institute Discussion Papers 98-058/2, Tinbergen Institute. [Downloadable!]
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  2. Clinton R. Shiells & Kenneth A. Reinert, 1993. "Armington Models and Terms-of-Trade Effects: Some Econometric Evidence for North America," Canadian Journal of Economics, Canadian Economics Association, vol. 26(2), pages 299-316, May. [Downloadable!] (restricted)
  3. Haskel, Jonathan E. & Slaughter, Matthew J., 2002. "Does the sector bias of skill-biased technical change explain changing skill premia?," European Economic Review, Elsevier, vol. 46(10), pages 1757-1783, December. [Downloadable!] (restricted)
  4. Bhattarai, Keshab & Ghosh, Madanmohan & Whalley, John, 1999. "On some properties of a trade closure widely used in numerical modelling," Economics Letters, Elsevier, vol. 62(1), pages 13-21, January. [Downloadable!] (restricted)
  5. Reinert, Kenneth A. & Roland-Holst, David W., 1992. "Armington elasticities for United States manufacturing sectors," Journal of Policy Modeling, Elsevier, vol. 14(5), pages 631-639, October. [Downloadable!] (restricted)
  6. Paul Krugman & Robert Lawrence, 1993. "Trade, Jobs, and Wages," NBER Working Papers 4478, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Hakura, D. & Deardorff, A.V., 1993. "Trade and Wages: What Are the Questions?," Working Papers 341, Research Seminar in International Economics, University of Michigan.
  8. Robert C. Feenstra & Gordon H. Hanson, 1996. "Globalization, Outsourcing, and Wage Inequality," NBER Working Papers 5424, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Berman, Eli & Bound, John & Griliches, Zvi, 1994. "Changes in the Demand for Skilled Labor within U.S. Manufacturing: Evidence from the Annual Survey of Manufactures," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 367-97, May. [Downloadable!] (restricted)
  10. David H. Autor & Lawrence F. Katz & Alan B. Krueger, 1998. "Computing Inequality: Have Computers Changed The Labor Market?," The Quarterly Journal of Economics, MIT Press, vol. 113(4), pages 1169-1213, November. [Downloadable!] (restricted)
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  11. Wood, Adrian, 1997. "Openness and Wage Inequality in Developing Countries: The Latin American Challenge to East Asian Conventional Wisdom," World Bank Economic Review, Oxford University Press, vol. 11(1), pages 33-57, January.
  12. Jonathan Haskel & Matthew J. Slaughter, 1999. "Trade, Technology and U.K. Wage Inequality," NBER Working Papers 6978, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. Wood, Adrian, 1998. "Globalisation and the Rise in Labour Market Inequalities," Economic Journal, Royal Economic Society, vol. 108(450), pages 1463-82, September. [Downloadable!] (restricted)
  14. David Card, 1998. "Falling Union Membership and Rising Wage Inequality: What's the Connection?," NBER Working Papers 6520, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  15. Wood, Adrian, 1995. "How Trade Hurt Unskilled Workers," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 57-80, Summer. [Downloadable!] (restricted)
  16. Borjas, G.J. & Freeman, R.B. & Katz, L.F., 1991. "On The Labor Market Effects Of Immigration And Trade," Harvard Institute of Economic Research Working Papers 1556, Harvard - Institute of Economic Research.
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  17. Steven J. Davis, 1992. "Cross-Country Patterns of Change in Relative Wages," NBER Working Papers 4085, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  18. Neven, Damien J & Wyplosz, Charles, 1996. "Relative Prices, Trade and Restructuring in European Industry," CEPR Discussion Papers 1451, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  19. Edward E. Leamer, 1996. "In Search of Stolper-Samuelson Effects on U.S. Wages," NBER Working Papers 5427, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  20. Peter Gottschalk & Timothy M. Smeeding, 1997. "Cross-National Comparisons of Earnings and Income Inequality," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 633-687, June. [Downloadable!] (restricted)
  21. Francine D. Blau & Lawrence M. Kahn, 1996. "International Differences in Male Wage Inequality: Institutions versus Market Forces," NBER Working Papers 4678, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  22. de Melo, Jaime & Robinson, Sherman, 1989. "Product differentiation and the treatment of foreign trade in computable general equilibrium models of small economies," Journal of International Economics, Elsevier, vol. 27(1-2), pages 47-67, August. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Dirk Velde, 2001. "Foreign direct investment and factor prices in U.S. manufacturing," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 137(4), pages 622-643, December. [Downloadable!] (restricted)
  2. Stephen Tokarick, 2002. "Quantifying the Impact of Trade on Wages: The Role of Nontraded Goods," IMF Working Papers 02/191, International Monetary Fund. [Downloadable!]
  3. T. Huw Edwards & John Whalley, 2003. "Short and Long Run Decompositions of OECD Wage Inequality Changes," UWO Department of Economics Working Papers 20032, University of Western Ontario, Department of Economics, revised Sep 2002. [Downloadable!]
    Other versions:
  4. Thierfelder, Karen & Robinson, Sherman, 2002. "Trade and the skilled-unskilled wage gap in a model with differentiated goods," TMD discussion papers 96, International Food Policy Research Institute (IFPRI). [Downloadable!]
  5. Hui Huang & John Whalley, 2003. "The Use of Literature Based Elasticity Estimates in Calibrated Models of Trade-Wage Decompositions: A Calibmetric Approach," NBER Working Papers 10137, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  6. Thierfelder, Karen & Robinson, Sherman, 2002. "Trade and tradability," TMD discussion papers 93, International Food Policy Research Institute (IFPRI). [Downloadable!]
  7. Michael Pflüger, 2001. "Trade, capital mobility, and the German labour market," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 137(3), pages 473-500, September. [Downloadable!] (restricted)
  8. Niven Winchester & David Greenaway & Geoffrey V. Reed, 2006. "Skill Classification and the Effects of Trade on Wage Inequality," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 142(2), pages 287-306, July. [Downloadable!] (restricted)
  9. Scott, Ewan & Emerson, Robert D., 2001. "Wage Differentials And Trade Relationships In Jamaica: Applications Of Truncated Regression Models And Repeated Cross-Section Data," 2001 Annual meeting, August 5-8, Chicago, IL 20475, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  10. Lisandro Abrego & John Whalley, 2000. "Demand Side Considerations and the Trade and Wages Debate," NBER Working Papers 7674, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. Michael Pflüger, 2003. "Trade, Technology and Labour Markets: Empirical Controversies in the Light of the Jones Model," Discussion Papers of DIW Berlin 328, DIW Berlin, German Institute for Economic Research. [Downloadable!]
  12. Lisandro Abrego & John Whalley, 2002. "Decomposing Wage Inequality Change Using General Equilibrium Models," University of Western Ontario, RBC Financial Group Economic Policy Research Institute Working Papers 20022, University of Western Ontario, RBC Financial Group Economic Policy Research Institute. [Downloadable!]
    Other versions:
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