A Production Theory Approach to the Imports and Wage Inequality Nexus

We employ a production theory approach to investigate the Stolper-Samuelson effect of fluctuations in the prices of imports, of different origin, on the wage differential between skilled and unskilled labour in the US. Challenging conventional wisdom we find that the positive, downstream-production related, effects of imports on the demand for labor are often significant enough to produce detectable net increases in wages. However, the overall impact of imports, including those that originate in less developed countries, on the wage differential is found to be negligible. Economy-wide dynamic processes of capital accumulation and technical change appear to be far more relevant driving forces of wage dispersion.