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Trade and Wages: A Malign Relationship?

Department of Economics, Columbia University
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  • Economics
  • Labor
  • Economics
  • Political Science


Trade and Wages: A Malign Relationship? by Jagdish Bhagwati, Columbia University October 1995 1994-95 Discussion Paper Series No. 761 I Revised: October 1995 Trade and Wages: A Malign Relationship? Jagdish Bhagwati Arthur Lehman Professor of Economics & Professor of Political Science Columbia University Thanks are due to Manmohan Agarwal, Don Davis, Vivek Dehejia, Bill Dickens, Robert Feenstra, Marvin Kosters, Robert Lawrence, Ed Learner, Jacob Mincer, Arvind Panagariya, T.N.Srinivasan and Martin Wolf for helpful conversations. Susan Collins deserves special thanks for many careful and constructive suggestions. The experience of decline in real wages of the unskilled workers during the 1980s in the United States, and the increase instead in their unemployment in Europe (due to the comparative inflexibility of their labour markets vis-a-vis those of the United States)1, has 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. Besides, the political leadership in both the the United States and the European Union has become more alert to the potential explosiveness of the issue. Thus, President Clinton, at a White House ceremony to gather support for the Uruguay Round ratification that week by Congress, focused just on this issue, categorically claiming that while Americans were worried about the effects of trade on their wages and jobs, trade was "not the cause but rather the solution" to their problems, indeed "the only solution". This was great politics, of course but, as the disagreements among economists in this volume suggest, not necessarily great economics as well. Of course, the President, like Jacques Delors and others in Europe who fear competition from the "Asiatic ants", was speaking to the favoured explanation, indeed the haunting fear, of the unions and of many policymakers that international trade is a principa

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