International trade and labour-market outcomes: Results, questions, and policy options

In this paper I address three aspects of recent research on the effect of international trade on labour markets. First, I survey recent research on trade's contribution to rising wage inequality between more-skilled and less-skilled workers. Despite unresolved methodological differences, the current consensus is that trade accounts for a positive yet relatively small share of rising inequality. Second, I discuss some important limitations of our current understanding of trade's effect on labour-market outcomes. There are limitations within the context of the 'one-cone Heckscher-Ohlin' model that has been the main theoretical framework guiding research. In addition, there are limitations in terms of issues not well addressed by tghis basic model. Finally, I link research to date to policy issues regarding both labour demand and labour supply. Labour-demand policies are likely to be poorly targeted regardless of trade's role affecting labour demand, while trade opennes diminishes the wage effects of labour-supply policies.