GEP Research Paper 99/13

Trade and Labour Rents: An Analysis of the Recent OECD Wage Inequality and Unemployment Experience

Paul Oslington

Abstract

There has been much discussion of increased wage dispersion and unemployment across the OECD over the last two decades. This paper suggests an explanation of these trends based on the effect of international trade on labour rents extracted as a result of the existence of hiring and firing costs. Unlike the standard Stolper-Samuelson trade explanation of the trends it can account for rising relative skilled wages at the same time as rising skilled labour intensity of production, and unskilled unemployment. Considering differences in labour market institutions, the model is also able to shed some light on the differences between US and European experiences over the period.

Issued in October 1999.

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