Pessoa (2016) finds similar results for the UK in the years following China’s accession to the WTO. Further, even if people are re-employed relatively quickly after an industry shrinks, there’s no guarantee they’ll get the same wage. Economics certainly doesn’t say rising import penetration means permanently fewer jobs, but it does suggest that, if you suddenly open up trade with a country with a plentiful supply of 7  unskilled labour, that can reduce the wages of less-skilled people at home . The Pessoa (2016) study finds that, among the bottom 10% of earners in the UK, those in industries more exposed to trade with China saw a drop of around 4% in their total earnings (relative to others) over the following few years. This is partly the  6 7  Autor et al (2013). Stolper and Samuelson (1941) 9  All speeches are available online at www.bankofengland.co.uk/speeches  9  result of slightly longer periods of non-employment. It’s also because they got less well paid in their new 8  jobs . More generally, the growth in trade with developing economies has been suggested as one possible explanation of the widening dispersion of wage and income inequality in the United States (the red line in Chart 10).
13 Quoted in Irwin (1996). 14 The campaigner Richard Cobden described the opponents of Corn Law abolition as “the bread-taxing oligarchy, unprincipled, unfeeling, rapacious and plundering”. 12  11  All speeches are available online at www.bankofengland.co.uk/speeches  11  Again, it is worth remembering this point today. Much of the work on trade and inequality focuses on the potentially differential effect on wages and employment. The gross costs of trade may not be evenly distributed. As Chart 11 demonstrates, however, the gross benefits of lower import prices are probably skewed as well. On average, things that are more tradable are also consumed disproportionately by the less well-off. It turns out this pattern is common to all developed economies. Chart 12 is taken from a recent study by Fajgelbaum and Khandelwal (2016), describing what would happen to relative consumer prices, and thereby the distribution of income, if international trade with the developing world were suddenly shut down. In every country, including the UK, it’s the less well-off who would be worse affected by the consequent rise in prices. Chart 11: Benefits of lower import prices are  Chart 12: This is also true in other developed  skewed towards the less well-off  economies  Source: Fajgelbaum and Khandelwal (2016); Note: Chart shows Source: Living Costs and Food Survey, ONS  real income loss from cutting off trade. Conclusion  One often hears that political discontentedness reflects rising income inequality and that this, in turn, is the fault of the growth in trade.