Adrian Wood’s 1994 book forcefully stated the case that “the main cause of the deteriorating situation of unskilled workers in developed countries has been expansion of trade with developing countries.” In this article he summarizes the theory and evidence supporting his position, responds to criticisms of his work, and critiques the leading alternative explanations. The starting point for the discussion is the recognition that the demand for unskilled labor has fallen substantially in developed countries, leading to increased wage inequality and/or unemployment; manufacturing employment has fallen faster than previous trends would have predicted. At the same time, imports of low-skill-intensive manufactures from developing countries have increased, as has the diffusion of computers and related technology into the workplace. Thus many empirical studies have evaluated the role of trade vs. technology, usually finding that trade makes only a small contribution, and so concluding by default that technology must be much more important. In contrast, this article argues that trade effects are quite large, and that the effects of technology are inseparable from the recent patterns of trade.
