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Submitted by Suhas Ketkar on

The benign wage effects in recipient countries of immigration from (and trade with) low wage countries seem to be rooted in the belief that wages are driven by productivity. But this long-held belief is now disputed by some recent data and research. As a recent piece in the Economist (Labor Pains dated November 2nd 2013)argues: "A falling share of labor implies that productivity gains no longer translate into broad rises in pay." While many factors may account for it, can we categorically rule the role of migration and trade in this phenomenon? The research by Michael Elsby et al. referred to in the Economist article shows that industries in the United States that are more exposed to imports have experienced a greater decline in the share of labor in each industry's output. This research does appear to lend credibility to the view that the competition from cheap labor in poorer countries (via migration and/or imports) has contributed to the decline in the share of income earned by workers.

Like most main stream economists, I too held for a long time that trade and immigration had little negative impact on workers in rich countries. Is the evidence referenced above enough to warrant a second critical look?