The impact of international trade, with newly industrialised countries, on the wages and employment of low-skilled and high-skilled workers in the European Union

In the last decades of the 20th century the labour market position of low-skilled people deteriorated substantially in most industrialised countries.; This trend was first noticed in the United States were in the 1980s the relative wages of high-skilled workers started to increase dramatically. In some EU countries, especially in the United Kingdom, wage inequality between high-skilled and low-skilled workers surged as well. In a number of EU countries the poor labour market position of low-skilled workers is reflected in high unemployment rates rather than in a rising skill premium.; In this dissertation the two factors that have been put forward to explain the decline of low-skilled workers are assessed, i.e. trade with low-skill abundant Newly Industrialised Countries and skill-biased technological change. Theoretical arguments do not permit to conclude which of these two explanations is the most important, leaving the decision to empirical studies. Contrary to most previous empirical work the potential interaction between both factors, e.g. technological change induced by international trade competition, is also accounted for.; One of the core theorems of the mainstream Heckscher-Ohlin trade theory, i.e. the Stolper-Samuelson theorem, predicts that when a high-skill abundant country starts trading with a low-skill abundant country, the relative wages of low-skilled workers will fall in the first and rise in the latter. Two-stage mandated wage regressions provide little evidence of significant Stolper-Samuelson effects for a panel of EU countries in the period 1985--2000.; However, estimations that, in contrast with the perfect competition assumption of the Heckscher-Ohlin theory, account for possible labour market rigidity in EU countries (flexible cost function framework, union-firm bargaining model) indicate that trade competition of Newly Industrialised Countries had a significant negative impact on the demand for low-skilled workers which could explain why in some EU countries unemployment of low-skilled workers increased rather than wage inequality. Although the estimation results indicate that international trade competition did affect the position of low-skilled workers, overall, technological change and institutional characteristics explain more of labour market performance than international trade.