In this paper we examine the reduction in the relative employment and wages of unskilled workers in the U.S. during the 1980's. We argue that a contributing factor to this decline was rising imports reflecting the outsourcing of production activities. In a theoretical model, we show that any increase in the Southern capital stock relative to that of the North, or neutral technological progress in the South, will increase the relative wage of skilled workers in both countries due to a shift in production activities to the South. Corresponding to this change in the relative wage is an increase in the price index of Northern activities within each industry, relative to that of the South. We confirm that this change in relative prices occurred for the U.S. and other industrialized countries relative to their trading partners. We also estimate that 15-33% of the increase in the relative wage of nonproduction (or skilled) workers in the U.S. during the 1980's is explained by rising imports.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
5121.
Length: Date of creation: May 1995 Date of revision: Publication status: published as Feenstra, Robert C. and Gordon H. Hanson. "Foreign Direct Investment And Relative Wages: Evidence From Mexico's Maquiladoras," Journal of International Economics, 1997, v42(3/4), 371-393. Political Economy of Trade Policy: Essays in Honor of Jagdish Bhagwati, MIT Press. 1996, pp.89-128. Handle: RePEc:nbr:nberwo:5121
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Find related papers by JEL classification: F14 - International Economics - - Trade - - - Country and Industry Studies of Trade F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
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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.:
George J. Borjas & Richard B. Freeman & Lawrence F. Katz, 1992.
"On the Labor Market Effects of Immigration and Trade,"
NBER Chapters,
in: Immigration and the Workforce: Economic Consequences for the United States and Source Areas, pages 213-244
National Bureau of Economic Research, Inc.
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