Trade and wages: A non -Stolper -Samuelson explanation. Evidence from Canada

During the 1980s and 1990s, wages of educated workers relative to those of less-educated workers increased in most industrialized countries. However, countries with relatively inflexible labour markets experienced an increase in unemployment of less-skilled (or, less-educated) workers. The search for factors that would explain this phenomenon led to vigorous debate among economists. A consensus has yet to emerge. Three main explanations of the relative wage phenomenon are: (1) Trade liberalization, (2) Skilled-biased technological progress, and (3) Both trade liberalization and technological progress.;The trade liberalization explanation is furnished by a well-known "Stolper-Samuelson Theorem", which says that a lowering of trade barriers by the domestic economy would increase the real wages of educated workers and would decrease the real wages of the less-educated workers.;The second explanation would argue that it was actually the technological progress of the 1980s and 1990s that primarily generated greater demand for skilled workers, resulting in the observed widening of the wage gap. Moreover, the better fitting of the data with the latter explanation rather than the Stolper-Samuelson Theorem was taken as an evidence for skilled-biased technological change to be playing a causal role independent of "internationalization".;The third and unifying explanation would suggest that a large part of the wage gap could be attributable to the skilled-biased technological change but trade liberalization would also be a contributing factor. Just because the observed phenomena does not fit the Stolper-Samuelson Theorem does not mean that trade as a cause should be ignored altogether. This alternative explanation was developed in a model by Bhagwati and Dehejia (1994) in their widely cited article, "Freer Trade and Wages of the Unskilled - Is Marx Striking Again?".;Developing the Bhagwati and Dehejia alternative trade explanation and empirically testing it for Canada is the objective of this dissertation. More specifically we test: (1) The relationship between trade liberalization as well as technological progress and the change in wages of educated workers and less-educated workers in Canada. (2) The suggested underlying linkages between trade liberalization and the change in the wage gap between educated and less-educated workers in Canada. We ask and answer the following questions: (1) Did the wages of educated workers rise relative to those of less-educated workers in Canada between 1993 and 1996? (2) What factors would explain such an increase in the wage gap? (3) Was trade liberalization a causal force behind the wage gap? (Abstract shortened by UMI.).