HOW TRADE HURT UNSKILLED WORKERS

This paper will argue for what is still a minority view among economists: that the main cause of the deteriorating situation of unskilled workers in developed countries has been expansion of trade with developing countries.(1) This view was advanced in Wood (1991a,b), and later developed into a book (Wood, 1994), but much the same line is taken by Batra (1993) and by Leamer (1993, 1994). It has been strongly attacked, however, by economists who think the effects of trade have been small-notably Lawrence and Slaughter (1993) and Krugman and Lawrence (1994). By way of a counterattack, this paper will outline the evidence that suggests that trade is the main cause of the problems of unskilled workers, respond to some criticisms of this evidence, and challenge the evidence for the alternative view that these problems are caused mainly by new technology. At the end, it will consider some of the implications of this debate for public policy.