Journal of Economic Perspectives: Vol. 26 No. 2 (Spring 2012)

Haskel, Jonathan, Robert Z. Lawrence, Edward E. Leamer, and Matthew J. Slaughter. 2012. "Globalization and U.S. Wages: Modifying Classic Theory to Explain Recent Facts." Journal of Economic Perspectives, 26(2): 119-40.

DOI: 10.1257/jep.26.2.119

This paper seeks to review how globalization might explain the recent trends in real and relative wages in the United States. We begin with an overview of what is new during the last 10-15 years in globalization, productivity, and patterns of U.S. earnings. To preview our results, we then work through four main findings: First, there is only mixed evidence that trade in goods, intermediates, and services has been raising inequality between more- and less-skilled workers. Second, it is more possible, although far from proven, that globalization has been boosting the real and relative earnings of superstars. The usual trade-in-goods mechanisms probably have not done this. But other globalization channels—such as the combination of greater tradability of services and larger market sizes abroad—may be playing an important role. Third, seeing this possible role requires expanding standard Heckscher-Ohlin trade models, partly by adding insights of more recent research with heterogeneous firms and workers. Finally, our expanded trade framework offers new insights on the sobering fact of pervasive real-income declines for the large majority of Americans in the past decade.

Haskel, Jonathan (Imperial College London)
Lawrence, Robert Z. (Harvard U)
Leamer, Edward E. (UCLA)
Slaughter, Matthew J. (Dartmouth College)

F02: International Economic Order
F16: Trade and Labor Market Interactions
J31: Wage Level and Structure; Wage Differentials