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The dollar, trade, technology and inequality in the USA

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  • Bob Anderton
  • Paul Brenton

Abstract

The US experienced a considerable increase in inequality between skilled and less-skilled workers during the early 1980s-a period which corresponds with a large temporary appreciation of the dollar. This article investigates the reasons behind this rise in inequality by evaluating the impact of trade with low-wage countries (LWCs) and technological change on the wage bill share of skilled workers (which is designed to capture movements in inequal ity arising from changes in both the relative wage and employment opportunities of the less-skilled). We find that an increase in US imports from LWCs-encouraged by the large appreciation of the dollar in the early 1980s- seems to explain some of the rise in US inequality in low-skill-intensive sectors, but that technological change (proxied by R&D expenditure) explains the rise in inequality in high-skill-intensive sectors. However, given that the timing of the sudden rise in US R&D expenditure corresponds with the appreciation of the dollar, it may be the case that the deterioration in US trade competitiveness during this period contributed to the rapid increase in the rate of technological change via mechanisms such as 'defensive innovation'. Hence one might also argue that the technology-based explanation for the rise in US inequality could actually be a trade-based explanation.

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  • Bob Anderton & Paul Brenton, 1998. "The dollar, trade, technology and inequality in the USA," National Institute Economic Review, National Institute of Economic and Social Research, vol. 166(1), pages 78-86, October.
    • Handle: RePEc:sae:niesru:v:166:y:1998:i:1:p:78-86
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    Cited by:

    1. Lisandro Abrego & John Whalley, 2003. "Goods market responses to trade shocks and trade and wages decompositions," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 36(3), pages 747-757, August.
    2. Paolo Figini & Holger Görg, 1999. "Multinational companies and wage inequality in the host country: The case of Ireland," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 135(4), pages 594-612, December.
    3. Lisandro Abrego & John Whalley, 2000. "Demand Side Considerations and the Trade and Wages Debate," NBER Working Papers 7674, National Bureau of Economic Research, Inc.
    4. Lisandro Abrego & John Whalley, 2002. "Decomposing Wage Inequality Change Using General Equilibrium Models," NBER Working Papers 9184, National Bureau of Economic Research, Inc.
    5. Glauco De Vita & Andrew Abbott, 2007. "Do exchange rates have any impact upon UK inward foreign direct investment?," Applied Economics, Taylor & Francis Journals, vol. 39(20), pages 2553-2564.
    6. Lisandro Abrego & John Whalley, 1999. "The Choice of Structural Model in Trade-Wages Decompositions," NBER Working Papers 7312, National Bureau of Economic Research, Inc.

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