Title: Economic Issues No. 16 -- Should Equity Be a Goal of Economic Policy?
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Content: Others argue that the widening gap between the wages of skilled workers and unskilled workers in the industrial countries is due to the development and dispersion of skill-intensive technologies rather than to increased trade. Several empirical studies have tried to gauge the relative importance of trade versus technological progress for the decline in wages of unskilled workers in developed countries. Estimates of the contribution of increased trade to the total increase of the wage differential between unskilled and skilled workers range from negligible to 50 percent. This large variation reflects the structure of production in developed countries and the share of the labor market that is in direct competition with low-skilled workers in developing countries. The debate regarding the effect of globalization on income distribution in developing countries mirrors the debate on developed countries. Although, all other things being equal, increased openness would be expected to boost the relative wage of unskilled workers in developing countries, experience has been mixed. Evidence suggests that the relative wages of unskilled workers rose in East Asian countries in the 1960s and 1970s but fell in Latin America in the 1980s and early 1990s. There are two possible explanations for why wages fell in Latin America: first, the opening up of developing Asian countries--Bangladesh, India, China, Indonesia, and Pakistan--where unskilled labor is even more abundant; second, the availability of new production technologies that are biased toward skilled labor.