GEP Research Paper 01/03
Competition, Trade and Wages
Peter Neary
This paper was subsequently published in Trade, Investment and Labour: Proceedings of IEA Conference on Globalisation and Labour Markets, D. Greenaway, R. Upward and K. Wakelin (eds.) Palgrave (2002).
Abstract
I briefly review the empirical evidence in the trade and wages debate, which overwhelmingly rejects the Heckscher-Ohlin explanation for recent increases in OECD skill premia. I then argue that the same evidence is also difficult to reconcile in general equilibrium with the view that exogenous skill-biased technological progress is the sole culprit. Finally, I present a model of oligopolistic competition which is more consistent with the evidence. Removing quantitative import constraints (a metaphor for increased foreign competition) encourages both home and foreign firms to invest more aggressively, raising their demand for skilled labour even at unchanged relative wages.
Issued in May 2001.
This paper is available in PDF format .