There has been an increase in the wage inequality (gap between the skilled and unskilled wage)...

There has been an increase in the wage inequality (gap between the skilled and unskilled wage) in the U.S. over the last 30 years. Can international trade be a cause of the rising inequality? Explain by appealing to the theories of trade that you have learnt in class. What do you think is the most plausible explanation for the rising inequality

Expert Solution

There has been an increase in the wage inequality in the U.S. over the last 30 years. The gap between the wages of skilled and unskilled workers has been rising. Though there are many reasons of rising inequality in the U.S., one of the major reasons of this inequality is international trade. Increase in the openness of the economy has led to increased level of competition in the market and has driven the firms not able to compete out of the market. Also, with increased openness the level of globalization and automation increased in the economy which increased the demand of skilled labor driving the unskilled out of the labor market. Thus, wages of skilled increased and wages of unskilled labor fell. Thus, international trade has been a cause of the rising inequality.

Thus, it can be stated that increased globalization and automation is one of the most plausible explanation for the rising inequality.

Rahul Sunny answered 1 year ago

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