Can Inter-Industry Wage Differentials Justify Strategic Trade Policy?

58 Pages Posted: 29 Jun 2010

See all articles by Lawrence F. Katz

Lawrence F. Katz

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Lawrence H. Summers

Harvard University; National Bureau of Economic Research (NBER); Harvard University - Harvard Kennedy School (HKS)

Date Written: October 1988

Abstract

This paper examines the relationship between labor market imperfections and trade policies. The available evidence suggests that pervasive industry wage differentials of up to 20 percent remain even after controlling for differences in observed measures of workers' skill and the effects of unions. Theoretical analysis indicates that given non-competitive wage differentials of this magnitude policies directed at encouraging employment in high-wage sectors could significantly enhance allocative efficiency. For the United States and other developed countries, such policies are more likely to involve export promotion than import substitution. Increased international trade flows (at least through 1984) have been associated with increased employment in high-wage U.S. manufacturing industries relative to low-wage U.S. manufacturing industries.

Suggested Citation

Katz, Lawrence F. and Summers, Lawrence H., Can Inter-Industry Wage Differentials Justify Strategic Trade Policy? (October 1988). NBER Working Paper No. w2739. Available at SSRN: https://ssrn.com/abstract=1631481

Lawrence F. Katz (Contact Author)

Harvard University - Department of Economics ( email )

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Lawrence H. Summers

Harvard University ( email )

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National Bureau of Economic Research (NBER)

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Harvard University - Harvard Kennedy School (HKS) ( email )

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