Trade, Technology and Labor Markets: General Equilibrium Perspectives

Trade, Technology and Labor Markets: General Equilibrium Perspectives

This paper summarizes the state of the debate on the effects of globalization and spontaneous technical change on wages and, in this context, describes the results from a recent study of the links between trade, technical change and labor market behavior These new results show that comparatively minor generalization of the standard Heckscher-Ohlin-Samuelson model of trading countries substantially moderates the Stolper-Samuelson factor reward changes stemming from trade reform. In part for this reason, results from a global general equilibrium analysis suggest that the direct effects of increased openness are a comparatively minor explanator of the observed shifts in labor demand and that skilled-labor-using technical change would appear most important. Of course, part of that technical change may itself be in response to international competition. Any protectionist response against developing countries, driven by concerns about wage inequality or unemployment, is shown to be counterproductive. (JEL Classification: F02, F13, J31)