Date of Award
Master of Arts (MA)
Dr. Scott Baier, Committee Chair
Dr. Michal M. Jerzmanowski
Dr. Matthew S. Lewis
The technology breakthroughs and tariff reductions of the last several decades have reduced the costs of trade. The classical Heckscher-Ohlin model cannot explain the pattern of the change in nonproduction wage share: the relative wages of nonproduction and production workers increased steadily since 1980s. The increasing wage gap leads to increasing income inequality, growing poverty and strains the social fabric. Hence, we need an alternative approach to explain the increasing â€œwage gapâ€ between nonproduction and production workers. Feenstra developed a trade in intermediate model which estimates the how much outsourcing contributes to the total change in nonproduction wage share and compared it with the contribution of computers. He estimated the change in nonproduction wage share in his book, Advanced International Trade (2004). Using the NBER productivity data (Bartelsman and Gray 1996) and imported intermediate inputs data (Feenstra and Hanson 1990) to run his regression, he found that outsourcing and high-tech capital are the main factors. Specifically, he reported that the outsourcing contributed 15-24% and computers (high-tech capital) contributed 13-31% to the total change in nonproduction wage share from 1979 to 1990. Moreover, whether outsourcing is more or less important than computers, depends on how we measure the computers. If we measure computers with the share of investments, it will be more important than outsourcing. If we measure computers with ex-post or ex-ante rental prices, it will be less important than outsourcing. For this paper, I use an updated data and compare my results with Feenstra's. The NBER data I use is for the years 1958 to 2009 (Bartelsman and Gray 2014) and the intermediate inputs data is updated through 1997. I find that outsourcing contributed 17-28% while computers contributed 9-45%. If we measure computers as the share of investment, it contributes 45%, which is more important than outsourcing. In other measurements like ex-post, computers contribute 14%, which is less important than outsourcing. The fact that my findings are similar to Feenstra's, provides a robustness check on his original findings and gives us more confidence in them.
Li, Tianqi, "The Effect of Outsourcing on the Change of Wage Share" (2017). All Theses. 2787.