International Trade and Widening Wage Gap: A General Equilibrium Approach

Abstract

Liberal trade policies and participation in the globalization process have so far been observed to have quite significant adverse effects on labour markets in many countries. Rise in open unemployment has coincided with more open trade regimes in many European countries (Marjit and Acharyya: International trade, wage inequality and the developing economy: a general equilibrium approach. Physica/Springer Verlag, 2003). In developing countries, an increasingly large number of workers with almost no or very low levels of skill are losing jobs in organized and formal sectors and are forced to take up informal jobs. On the other hand, skill premium and wage gap among the skilled and unskilled workers has been on the rise in almost every parts of the globe, and the trend is sustained over a rather long period of time, beginning since the mid 1980s. Given this perspective, this chapter discusses different alternative theoretical explanations towards the role of trade liberalization and globalization in symmetric widening the wage-gap across developed and developing countries, and dimensions of the problem in the context of developing countries.