Sunday, April 20, 2008

Education, not trade, causes inequality

Contrary to the rhetoric coming out of the Democratic primary, trade is not responsible for rising inequality:
...America no longer makes some of the low-skilled, labour-intensive goods that it imports. In those goods there are no domestic workers to lose out to foreign competition. Second, even when America does produce something that is imported from China, it may make it in a different way, with more machinery and only a few high-skilled workers. If imports from China and other poor countries compete with more-skilled American workers, they may displace workers but will not widen wage inequality.
More likely, it is the increasing returns to education that is behind the rising inequality:
an information revolution has increased the economic rewards of education and punished those who lack it.

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