Krugman’s conundrum

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a different way, with more machinery and only a few high-skilled workers. If imports from China and other poor countries compete with more-skilled American workers, they may displace workers but will not widen wage inequality.

Given the lack of fine-grained statistics, none of these studies settles the debate. It is possible that globalisation is becoming a bigger cause of American wage inequality. But contrary to the tone of the political debate, and the thrust of Mr Krugman’s commentary, the evidence is inconclusive. “How can we quantify the actual effect of rising trade on wages?” Mr Krugman asked at the end of his paper. “The answer, given the current state of the data, is that we can’t.”

* Sources:

Growing World Trade: Causes and Consequences, by Paul Krugman, Brookings Papers on Economic Activity 1:1995

Blue Collar Blues: Is Trade to Blame for Rising US Income Inequality?, by Robert Z. Lawrence, Peterson Institute for International Economics, January 2008

Trade and Wages, Reconsidered, by Paul Krugman, Brookings Papers on Economic Activity (forthcoming—a draft version is available)

Globalisation, American Wages and Inequality, by Josh Bivens, EPI Working Paper 279, 2007