Shifts in relative US wages: The role of trade, technology, and factor endowments

A basic relationship of the standard general equilibrium trade model relati ng product-price changes to factor-price changes is used-together with othe r economic relationships based on this model- to investigate empirically th e importance of changes in trade, technology, and factor endowments in acco unting for the shifts in relative wages of less-educated workers compared t o more-educated workers from 1967 to 1996. In the early part of the period when wage inequality decreased, the dominant explanatory factor seems to ha ve been a relative increase in the supply of highly educated labor. However , since the late 1970s, none of the three economic forces considered can al one account for the observed changes in relative wages, prices, outputs, ne t exports, and factor-use ratios. In particular, both education-biased tech nical progress that was greater in industries that intensively used more-ed ucated labor and increased import competition in industries that intensivel y used less-educated labor seem to have played important roles in bringing about the increase in wage inequality during the 1980s and 1990s.