The decline in unskilled workers’ real wages during the 1980s in the United States and the increase in their unemployment in Europe (due to the comparative inflexibility of European labor markets vis-à-vis those in the United States) have prompted a search for possible explanations. This search has become more acute with the evidence that the adverse trend for the unskilled has not been mitigated during the 1990s to date.
A favored explanation, indeed the haunting fear, of the unions and of many policymakers is that international trade is a principal source of the pressures that translate into wage decline and/or unemployment of the unskilled. As Bhagwati and Dehejia (1994) put it: Is Marx striking again?
I have examined the question of trade explanations at great length in Bhagwati and Dehejia (1994), and the issue has been extensively treated in Bhagwati and Kosters (1994). My conclusion is that the trade explanation is exceptionally weak for the 1980s, that there are good theoretical and empirical reasons why trade did not cause the adverse impact one might fear, and that the case therefore for the overwhelming role of technical change (biased against the use of unskilled labor) in explaining the misfortune of the unskilled is very strong, indirectly and directly as well.
International Economics | Labor Economics | Law
Jagdish N. Bhagwati,
Trade and Wages: Choosing Among Alternative Explanations,
Econ. Pol'y Rev.
Available at: https://scholarship.law.columbia.edu/faculty_scholarship/3635