Technology, Trade, and Increasing Inequality: Does the Cause Matter for the Cure?

This paper addresses an issue that has received a great deal of attention in recent years, both from international trade economists and from labor economists: What has caused the relative wage of skilled labor compared to unskilled labor in the United States to increase through the 1980s and 1990s? Prime candidates for causing this change have been "trade" - the increased competition of U.S. workers with unskilled workers abroad - and "technology" - new products and processes that may have increased the productivity of skilled workers or skill-intensive industries relative to their unskilled counterparts. The paper reviews what has happened to relative wages and the explanations that have been suggested. A brief look at the empirical evidence from this literature is suggestive, but hardly conclusive. But the paper then asks whether the answer to this question really matters.