A Production Theory Approach to the Imports and Wage Inequality Nexus

Abstract

I employ a production theory approach to investigate the effect of fluctuations in the prices of imports of different origin on the wage differential between skilled and unskilled labor in the United States. Unlike competing methodologies, the employed framework of analysis accounts for the economy‐wide effects of imports that derive from both domestic output substitution as well as downstream production. The results of this study suggest that the overall impact of imports, including those that originate in less developed economies, on the wage differential is negligible. Economy‐wide dynamic processes of capital accumulation and technical change appear to play a far more important role in wage dispersion.

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