Trade and inequality, revisited

Paul Krugman

Ayes Noes

Democrats 102 156

Republicans 132 43

The NAFTA vote, 1993

AYES NOES

REPUBLICAN 202 27DEMOCRATIC 15 187INDEPENDENT 1TOTALS 217 215

CAFTA VOTE, 2005

The pact faces near-unanimous opposition by Democrats, who charge it failsto offer adequate labor protections. It also faces opposition or misgivings byRepublicans from districts with large numbers of sugar producers, textilemakers and other manufacturers - Marketwatch

1

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8

1.9

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

College-high school wage ratio

From John Romalis, AER 2004

From “Growing world trade: causes and consequences”, 1995

0

1

2

3

4

5

6

1970 1990

% o

f GD

P

Imports of manufactures from NIEs

From “Growing world trade: causes and consequences”, 1995

Bernanke, this year:

Unfortunately, much of the available empirical research on the influenceof trade on earnings inequality dates from the 1980s and 1990s and thusdoes not address later developments. Whether studies of the more-recentperiod will reveal effects of trade on the distribution of earnings that differfrom those observed earlier is to some degree an open question.

0

1

2

3

4

5

6

1970 1990 2005

% o

f GD

P

Imports of manufactures from NIEs

From Romalis 2004

Relative trading partner wages

0

10

20

30

40

50

60

70

80

1975 1990 2005

% o

f US

“Growing world trade,” again

H

L

Outsourcing made simple (really): Samuelson’s angel

Computers

Apparel

H

L

The angel’s wrath …

Factor price equalization

North

South

H

L

Bundling

North

South

L-intensiveactivities incomputers

H-intensive activities in apparel

FPE

25%

30%

35%

40%

45%

50%

1917

1922

1927

1932

1937

1942

1947

1952

1957

1962

1967

1972

1977

1982

1987

1992

1997

2002

Shar

e (in

%),

excl

udin

g ca

pita

l gai

ns

Top decile share

5%6%7%8%9%

10%11%12%13%14%15%16%17%18%19%20%

1913

1918

1923

1928

1933

1938

1943

1948

1953

1958

1963

1968

1973

1978

1983

1988

1993

1998

2003

Shar

e (in

%),

excl

udin

g ca

pita

l gai

ns

P90-95 P95-99 P99-100