ABSTRACT
This chapter reviews some of the more important studies in the literature on rising wage inequality in the industrialized world, the developing world and in Chile. The starting point for analyses of the effects of free trade on wages is the well-known neoclassical trade theory, Heckscher-Ohlin. The theory postulates that under conditions of free trade, countries will export goods that use intensively the factors of production with which they are relatively abundantly endowed, and import goods that use intensively factors of production that are relatively scarce. The predictions offered by Heckscher-Ohlin-Samuelson (HOS) have been at the center of the debate on the declining economic position of low-skilled workers in the United States and other industrialized countries. Labor economists studying rising wage inequality in the United States have put greater emphasis on skill-biased technological change in causing rising wage inequality, than on international trade.
