Unemployment in the OECD has risen to levels not seen since the inter-war period. The greatest increase has been among unskilled workers, who lack the education required to compete in modern labour markets. Their pay has also fallen compared to that of skilled workers. This paper explores some of the key issues raised by these developments. The first part considers the impact of competition from low-wage countries on the economies of the North. It then examines and extends the important work of Wood (1994) on this topic, using a general equilibrium model to provide a more complete account of North-South trade. Simulations are used to quantify effects which are either neglected by Wood or considered only in theoretical terms. These include the impact of trade on national income and the output of non-traded services in the North.
