Trade, Technology and Wages: General Equilibrium Mechanics

This paper highlights analytical reasons why we believe trade and technology are linked to wage movements in general, and how we should organize our examination of the recent episode of wage and employment erosion in the OECD countries. We start with a graphic tour through the mechanics of general equilibrium theory on trade and wages. This provides a set of implied relationships between wages and factor intensity trends that, together, provide a casual test of the consistency of posited relationships with actual trends. Numeric analysis and a review of the general equilibrium empirical literature follow the theoretical overview.