Trade and wages in Australia

Abstract

The trade and wages debate worldwide, over the last decade has focused attention on the possible relationships between trade liberalisation and the factor distribution of income. In Australia real wages in manufacturing have remained about the same since 1977 while real GDP, Gross Domestic Product has doubled. At the same time Australia has reduced import protection. This pattern is observed in a range of developed countries, Slaughter (1998). There is a tendency to attempt to link these two trends causally in the trade and wages debate. Standard trade theory provides a framework to analyse this hypothesis by drawing the links between trade liberalisation and factor returns. This nexus is examined here by examining the factor content of Australian trade in a framework that enables us to draw some conclusions about the changes in factor returns that can be expected from trade liberalisation. In other words, the question posed by this paper is what are the characteristics of workers who benefit and what are the characteristics of the workers who lose from trade liberalisation in Australia given the structure of factor intensities in the tradeable sector of the economy. Finally, the paper closes with some discussion of what might be done about the problem of real wage stagnation.