International trade and the income position of low-skilled and high- skilled workers in the European Union

Increased trade competition (e.g. of low-wage Newly Industrialized Countries (NIC)) is, in the public debate on the impact of globalization, often rounded up as a usual suspect of the deteriorated income position of low-skilled workers, be it in terms of decreased relative wages in the US or-due to alleged labour market rigidities-in terms of unemployment of low-skilled workers in the European Union. Most academic researchers seem to exculpate international trade and nominate skill-biased technological change for the more probable culprit of increased income inequality (see, for example, Brenton 1999; Haskel and Slaughter 2001). However, Slaughter (2000) argues that despite methodological progress, research has still fundamental limitations with regard to answering how much international trade contributes to rising wage inequality. Moreover, most of the empirical work focuses on the US and is only matched with a limited number of country studies for the European Union.1 Given the substantial differences in institutional setting and trade patterns of EU countries, economic shocks need not have a symmetric impact within the European Union. It may therefore be debatable to extrapolate the results of the studies on a single EU country, to the whole European Union.