What are the links between slow US real wage growth, increased earnings inequality and trade? Lawrence deconstructs the gap between real blue-collar wages and labor productivity growth over the past quarter-century and estimates (a) how much of the gap is due to measurement issues and (b) how much higher these wages might have been if the distribution of income been kept constant. He also argues that while increased trade with developing countries may have played some part in causing greater wage inequality in the 1980s, surprisingly, over the past decade the impact has been too small to show up in aggregate wage data on inequality. Increases in income inequality and slow real wage growth since 2000 reflect strong profit growth. Increases in inequality over the past decade also have resulted from dramatic income gains for the top one percent of wage earners.
