Skip to content
BY 4.0 license Open Access Published by De Gruyter Open Access March 13, 2012

International Trade and Polarization in the Labor Market

Satya P. Das EMAIL logo
From the journal Economics


The paper builds an argument that international trade can be an explanation behind polarization of employment in the labor market observed in developed countries such as U.K. and U.S. It considers a small open economy, having production sectors which use three types of labor: high-skill, middle-skill and low-skill. The economy faces an increase in the relative price of the high-skill intensive sector. Using decision rules for choosing high-skill, middleskill and low-skill education, it is shown that such a terms-of- trade shock can lead to polarization: shrinkage of middle-skill jobs, combined with higher shares of high-skill as well as low-skill workers in the total workforce. The effects of off-shoring on wages and job composition are also studied. Off-shoring of low-skill and high-skill tasks, not middle-skill tasks, is shown to contribute towards polarization in job composition.

JEL Classification: F16; J21


Autor, D., Katz, L., and Kearny, M. (2006). The Polarization of the U.S. Labor Market. American Economic Review Papers and Proceedings, 96(2): 189–194. url in Google Scholar

Autor, D., Katz, L., and Kearny, M. (2008). Trends in U.S. Wage Inequality: Revising the Revisionists. Review of Economics and Statistics, 90(2): 300–323. url in Google Scholar

Autor, D., Levy, F., and Murnane, R. (2003). The Skill Content of Recent Technological Change: An Empirical Exploration. Quarterly Journal of Economics, 118(4): 1279–1333. url in Google Scholar

Bernard, A., and Jensen, J. (1997). Exporters, Skill Upgrading and the Wage Gap. Journal of International Economics, 42(1-2): 3–31. url in Google Scholar

Bivens, J. (2007). Globalization, American Wages, and Inequality. Working Paper, Economic Policy Institute. url in Google Scholar

Blanchard, E., andWillmann, G. (2009). Trade, Education and the Shriking Middle Class. Mimeo.Search in Google Scholar

Costinot, A., and Vogel, J. (2010). Matching and Inequality in the World Economy. Journal of Political Economy, 118(4): 747–786. url in Google Scholar

Das, S. (2006). Trade, Skill Acquisition and Distribution. Journal of Development Economics, 81(1): 118–141. url in Google Scholar

Feenstra, R. (1998). Integration of Trade and Disintegration of Production in the Global Economy. Journal of Economic Perspectives, 12(4): 31–50. url in Google Scholar

Feenstra, R. (2004). Advanced International Trade: Theory and Evidence. Princeton, New Jersey: Princeton University Press.Search in Google Scholar

Feenstra, R. (2010). Offshoring in the Global Economy. Cambridge, Massachusetts: MIT Press.Search in Google Scholar

Feenstra, R., and Hanson, G. (1997). Foreign Direct Investment and Relative Wages: Evidence from Mexico’s Maquiladoras. Journal of International Economics, 42(3-4): 371–393. url in Google Scholar

Feenstra, R., and Hanson, G. (1999). The Impact of Outsourcing and High- Technology Capital on Wages: Estimates for the U.S., 1979-1990. Quarterly Journal of Economics, 114(3): 907–940. url in Google Scholar

Frank, R. (1984). Interdependent Preferences and the Competitive Wage Structure. RAND Journal of Economics, 15(4): 510–520. url in Google Scholar

Frank, R. (1985). The Demand for Unobservable and Other Nondispositional Goods. American Economic Review, 75(1): 101–116. url in Google Scholar

Galor, O. (2000). Income Distribution and the Process of Development. European Economic Review, 44(4-6): 706–712. url in Google Scholar

Galor, O., and Zeira, J. (1993). Income Distribution and Macroeconomics. Review of Economic Studies, 60(1): 35–52. url in Google Scholar

Glazer, A. G., and Konrad, K. (1996). A Signalling Explanation for Charity. American Economic Review, 86(4): 1019–1028. url in Google Scholar

Goos, M., and Manning, A. (2007). Lousy and Lovely Jobs: The Rising Polarization of Working Bretain. Review of Economics and Statistics, 89(1): 118–133. url in Google Scholar

Grossman, G., and Rossi-Hansberg, E. (2008). Trading Tasks: A Simple Theory of Offshoring. American Economic Review, 98(5): 1978–1997. url in Google Scholar

Heffetz, O., and Frank, R. (2010). Preferences for Status: Evidence and Economic Implications. In J. Benhabib, A. Bisin, and M. Jackson (Eds.), Handbook of Social Economics, volume 1A. Elsevier. url in Google Scholar

Jung, J., and Mercenier, J. (2010). Routinization Biased Technical Change, Globalization and Labour Market Polarization: Does Theory Fit the Facts? Working Paper, University of Verona.Search in Google Scholar

Krugman, P. (2008). Trade and Wages, Reconsidered. Brookings Papers on Economic Activity, Spring: 103–154. url in Google Scholar

Long, N., and Shimomura, K. (2004). Relative Wealth, Status-Seeking and Catching Up. Journal of Economic Behavior and Organization, 53(4): 529–542. url in Google Scholar

Pham, T. (2005). Economic Growth and Status-Seeking Through Personal Wealth. European Journal of Political Economy, 21(2): 407–427. url in Google Scholar

Prahalad, C. (2005). Art of Outsourcing. The Wall Street Journal, pages A14, June 8.Search in Google Scholar

Spitz-Oener, A. (2006). Technical Change, Job Tasks and Rising Educational Demand: Looking Outside the Wage Structure. Journal of Labor Economics, 24(2): 235–270. url in Google Scholar

Yeaple, S. (2005). A Simple Model of Firm Heterogeneity, International Trade and Wages. Journal of International Economics, 65(1): 1–20. url in Google Scholar

Published Online: 2012-03-13
Published in Print: 2012-12-01

© 2012 Satya P. Das, published by Sciendo

This work is licensed under the Creative Commons Attribution 4.0 International License.

Downloaded on 7.12.2022 from
Scroll Up Arrow