Conclusion

The phenomenon of growing wage inequality across the world during the 1980s and 1990s has posed quite a few challenges to the economists. Foremost is to clearly distinguish the roles of more open-minded trade policies and technological changes as dominant factors behind such outcomes. Second, if trade is the main cause, how to explain the widening wage-gap both in the North and in the South. The latter has been the major concern for the trade theorists primarily because the existing theories and models of trade fail to establish such a nexus between freer trade and wage inequality. As is discussed in Chapter 3, if one goes by the standard HOS model, freer trade can at best lead to asymmetric wage movements in the North and the South. Moreover, South being relatively abundant in unskilled-labour, should experience an increase in the relative wage for its unskilled workers. Thus, if one has to argue in favour of trade causing wage inequality, the first task at hand would be to establish the observed relationship at the theoretical level.