Income Inequality and Trade: How to Think, What to Conclude

Abstract

Recent econometric work and growing analytical consensus suggest that exogenous international market pressures are a contributing factor to trends in U.S. wage/earnings inequality. Trade accounts for a share of these inequality trends close to or somewhat greater than its 10-15 percent share of economic activity, especially over medium-term horizons and dependent on precise definition. Trade is neither a trivial influence nor a dominant one. Evidence exists that its influence has declined slightly in the past decade, however. Rapid technological growth in exportable sectors seems more important.