International trade, technical change and wage inequality in the U.K. economy

Abstract

This paper examines the coexistent impact of international trade and technical change on U.K. wages across different occupational groups and across different skill groups. International trade is measured as changes in product prices and technical change as total factor productivity (TFP) growth. We take account of a multi-sector and multi-factors of production economy and use mandated wage methodology to offer a close theoretical-empirical relationship. We use data of the British Household Panel Survey (1991-2008) and EU Klems database (1970-2005) and estimate for each year the share of high-, medium- and low-skilled workers and the share of 8 occupational groups of 14 different U.K. manufacturing sectors. The shares indicate structural changes of the economy and are used to estimate how factors of production are affected by both product price changes and TFP changes per industry.