in particular by export demand shifts. As for the impact of demand increases and technology
variables on the within components of wage and employment increases, it is shown, instead, that
the impact of technology measures is relatively stronger than that of demand increases, confirming
that within-plants skill upgrading is mainly driven by skill-biased technical change.
The main conclusion from the work of Bernard and Jensen is that looking at plant-level evidence
instead of aggregate industry-level data reveals that trade-induced demand shifts are responsible
for substantial relocation of resources across plants, and in particular in favor of exporting plants,
and that this might explain much of the recent increase in wage inequality.
6 Trade and Labor Demand Elasticities
In the previous section we have summarized the main findings of the theoretical and empirical lit-
erature on the determinants of the rise in wage inequality in trade liberalizing developing countries.
However, the rise in wage inequality is not the only adverse effect of globalization on the welfare
of workers. A new strand of literature, initiated by Rodrik (1997), argues that there are more
subtle ways through which globalization may reduce the welfare of workers and jeopardize social
stability. The main argument, set out informally by Rodrik, is that reduced barriers to trade and
investment exacerbate the asymmetry between groups that can cross international borders and
those that cannot. The former groups, which include skilled workers, professionals and owners of
capital, are freer to take their resources where their reward is highest. The latter groups, which
mainly include unskilled workers, are instead tied to their country of origin because they are less
capable of taking advantage of the richer menu of opportunities offered by the global market. The
main consequence is that the demand for large segments of the working population becomes more
elastic, since these workers can be more easily substituted by other workers across national borders.
Rodrik argues that a trade-induced increase in labor demand elasticities has the following
adverse consequences for the welfare of workers: 1) a shift of the incidence of non-wage labor costs
towards labor and away from employers; 2) more uncertainty due to more volatile responses of
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