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Research Programmes | Trade:

The Impacts of Globalisation on Workers

Overview

Over the last few decades, trade liberalisation and reduction in transportation costs have dramatically increased trade. Understanding the effects of globalisation on the income distribution is an important policy issue for reasons of equity and political economy. Although trade theory generally predicts welfare gains from trade for the economy as a whole, the current era of globalization has often exacerbated income inequality. When policies fail to ensure that gains are broadly shared, calls for trade protection or redistribution may become irresistible. The ongoing process of globalisation may determine who occupies the factories and who Occupies the streets.

In fact, the impact of free trade on workers can be very different across groups. CEP researchers have provided a theoretical framework for analysing the distributional consequences of globalisation that recognises that not only firms, but also workers, display significant heterogeneity (Discussion Paper No 940, final version: Econometrica). We show, for example, how labour market frictions impact both wages and the allocation of workers across firms after trade liberalisation. This affects income distribution and explains why many groups strongly favor or oppose free trade.

To study the effect of reduced global trade barriers on inequality, our researchers use the construction of the United States Interstate Highway System as a source of exogenous variation in trade barriers (Discussion Paper No 772, final version: Review of Economic and Statistics). The study shows that the highway construction increased the wage-bill of high-skilled workers relative to low-skilled workers in counties where skill was abundant, but reduced it where skill was scarce. This suggests that the expansion of trade between economies that differ in their skill endowment, such as trade between the developed world and the less-developed world, may continue to contribute to changes in labour market inequality.

News Coverage

The CEP's research is often featured in international news coverage and is influential in informing public debate. Some recent coverage discussing work of the Impacts of Globalisation on Workers group include:

Related Publications

Recent CEP research in this area includes:
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CEP Discussion Paper
Brain Drain or Brain Gain? Technology Diffusion and Learning On-the-job Thomas Sampson
September 2012
Paper No' CEPDP1168:
Read Abstract | Full Paper (pdf)

JEL Classification: F2; J24; O33


Tags: technology diffusion; managerial knowledge; learning on-the-job; fdi; brain drain

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CEP Discussion Paper
Selection into Trade and Wage Inequality Thomas Sampson
June 2012
Paper No' CEPDP1152:
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JEL Classification: F16; J31


Tags: wage inequality; matching; technology; skills; trade

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CEP Discussion Paper
Immigration, Offshoring and American Jobs Gianmarco I. P. Ottaviano, Giovanni Peri and Greg C. Wright
May 2012
Paper No' CEPDP1147:
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JEL Classification: F22; F23; J24; J61


Tags: employment; production tasks; immigrants; offshoring


This paper has been published as:
Rethinking the Effect of Immigration on Wages, Gianmarco I. P. Ottaviano and Giovanni Peri, Journal of the European Economic Association, Volume 10, Issue 1, pp.152-197, February 2012
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CEP Discussion Paper
Assignment Reversals: Trade, Skill Allocation and Wage Inequality Thomas Sampson
December 2011
Paper No' CEPDP1105:
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JEL Classification: J30; L60; O30


Tags: skilled labor; productivity; workforce; wage inequality; skill intensity reversal

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CEP Discussion Paper
Trade and Labor Market Outcomes Elhanan Helpman, Oleg Itskhoki and Stephen Redding
December 2010
Paper No' CEPDP1028:
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JEL Classification: F12; F16; J64


Tags: inequality; unemployment; trade; labour market policy

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CEP Discussion Paper
Wage Bargaining and the Boundaries of the Multinational Firm Maria Bas and Juan Carluccio
December 2009
Paper No' CEPDP0963:
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JEL Classification: F10; J52; L22


Tags: wage bargaining; trade unions; sourcing; multinational firms

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CEP Discussion Paper
Inequality and Unemployment in a Global Economy Elhanan Helpman, Oleg Itskhoki and Stephen Redding
July 2009
Paper No' CEPDP0940:
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JEL Classification: F12; F16; E24


Tags: wage inequality; international trade; risk; unemployment

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CEP Discussion Paper
Trade, Technology Adoption and Wage Inequalities: Theory and Evidence Maria Bas
December 2008
Paper No' CEPDP0902:
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JEL Classification: F10; F12;F41


Tags: firm heterogeneity; trade reforms; technology adoption; skill premium; plant panel data