ABSTRACT
Income inequality has risen in the USA and UK since the 1980s. There are several views that emphasise that this situation is the outcome of institutional factors such as deregulation, privatisation, tax reform favourable to high-income earners, reform of the social security system, the decreasing income transfer and attack on trade unions (Freeman and Katz 1994; Pontusson 2005; Krugman 2007; Goldin and Katz 2007). 1 However, the most popular view is the skill-biased technological change (SBTC) hypothesis wherein the main cause of the rising income inequality is the demand shift towards skilled labour through the diffusion of the ‘IT-related technique’ (Katz and Murphy 1992; Berman et al. 1994; Autor et al. 1998, 2008). As the SBTC hypothesis assumes that wages are determined chiefly by the supply–demand condition in the labour market, the demand shift towards skilled labour raises the wages of skilled workers. On the other hand, there are some studies that emphasise the influence of globalisation. This view is divided into two hypotheses. The first one emphasises the relocation (outsourcing) of non-skilled production to developing countries. As such outsourcing lowers the demand for non-skilled workers in developed countries, the relative demand for skilled labour increases, thus widening the wage gap between the two groups (Feenstra and Hanson 1996). According to the SBTC and the outsourcing hypotheses, the demand shift towards skilled labour occurs within each industry. The second hypothesis based on globalisation emphasises the factor price change in developed countries (an increase in the wages of skilled labour and a decrease in those of non-skilled labour) as an effect of trade in the Heckscher– Ohlin–Samuelson model (Wood 1994; Sachs and Shatz 1994). 2 According to this hypothesis, the demand shift towards skilled labour is caused by the changes in the industrial structure that lead to the production specialisation for skilled labour-intensive goods in developed countries.
