Global Production Sharing and Rising Inequality: A Survey of Trade and Wages

66 Pages Posted: 9 Jul 2001 Last revised: 17 Jan 2010

See all articles by Robert C. Feenstra

Robert C. Feenstra

University of California, Davis - Department of Economics; National Bureau of Economic Research (NBER)

Gordon H. Hanson

University of California, San Diego (UCSD) - Graduate School of International Relations and Pacific Studies (IRPS); National Bureau of Economic Research (NBER)

Date Written: July 2001

Abstract

We argue that trade in intermediate inputs, or 'global production sharing,' is a potentially important explanation for the increase in the wage gap between skilled and unskilled workers in the U.S. and elsewhere. Using a simple model of heterogeneous activities within an industry, we show that trade in inputs has much the same impact on labor demand as does skill-biased technical change: both of these will shift demand away from low-skilled activities, while raising relative demand and wages of the higher skilled. Thus, distinguishing whether the change in wages is due to international trade, or technological change, is fundamentally an empirical rather than a theoretical question. We review three empirical methods that have been used to estimate the effects of trade in intermediate inputs and technological change on wages, and summarize the evidence for the U.S. and other countries.

Suggested Citation

Feenstra, Robert C. and Hanson, Gordon H., Global Production Sharing and Rising Inequality: A Survey of Trade and Wages (July 2001). NBER Working Paper No. w8372. Available at SSRN: https://ssrn.com/abstract=276002

Robert C. Feenstra (Contact Author)

University of California, Davis - Department of Economics ( email )

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Davis, CA 95616-8578
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916-752-9240 (Phone)
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National Bureau of Economic Research (NBER)

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Gordon H. Hanson

University of California, San Diego (UCSD) - Graduate School of International Relations and Pacific Studies (IRPS) ( email )

9500 Gilman Drive
La Jolla, CA 92093-0519
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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