Globalisation and Wages: A Tale of Two Perspectives

This paper aims to provide an overview of recent research on the causes of rising wage inequality particularly the rising skill premium in the United States and other countries. I argue that most recent research has used one of two methodologies: the "labour" approach or the "trade" approach. These two approaches are distinguished by their modelling of the national labour-demand schedule: from the labour perspective this schedule slopes downward everywhere, but from the trade perspective it has infinitely-elastic segments. These different demand schedules imply very different empirical strategies for analyzing the causes of rising inequality. Finally, I speculate on how likely a "protectionist backlash" is in response to rising inequality. I argue that, unfortunately for proponents of free trade, such a backlash is already underway particularly with respect to setting the terms of trade-policy debate in the United States and other countries. Outline