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The dollar, trade, technology and inequality in the USA

Published online by Cambridge University Press:  26 March 2020

Bob Anderton  and
Paul Brenton
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Abstract

The US experienced a considerable increase in inequality between skilled and less-skilled workers during the early 1980s—a period which corresponds with a large temporary appreciation of the dollar. This article investigates the reasons behind this rise in inequality by evaluating the impact of trade with low-wage countries (LWCs) and technological change on the wage bill share of skilled workers (which is designed to capture movements in inequality arising from changes in both the relative wage and employment opportunities of the less-skilled). We find that an increase in US imports from LWCs—encouraged by the large appreciation of the dollar in the early 1980s—seems to explain some of the rise in US inequality in low-skill-intensive sectors, but that technological change (proxied by R&D expenditure) explains the rise in inequality in high-skill-intensive sectors. However, given that the timing of the sudden rise in US R&D expenditure corresponds with the appreciation of the dollar, it may be the case that the deterioration in US trade competitiveness during this period contributed to the rapid increase in the rate of technological change via mechanisms such as ‘defensive innovation’. Hence one might also argue that the technology-based explanation for the rise in US inequality could actually be a trade-based explanation.

Type
Articles
Information
National Institute Economic Review , Volume 166 , October 1998 , pp. 78 - 86
Copyright
Copyright © 1998 National Institute of Economic and Social Research

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Footnotes

We are grateful to the National Institute's Editorial Board and Valerie Jarvis for useful comments, but any errors remain the responsibility of the authors. This research forms part of the Globalisation and Social Exclusion project funded by the European Community under the Targeted Socio-Economic Research (TSER) Programme.

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