These conclusions might well be taken as provisional – because research is limited

and gaps abound, and because the world is undoubtedly at the earliest phase of a global
integration in services that is likely to intensify in the years ahead.
In summary, the mosaic of offshoring studies in intermediate goods as well as services
presents only a partial picture and one without conclusive patterns. On the one hand, workers
in exporting firms and in sectors with comparative advantage are likely to enjoy more buoyant
job opportunities and higher wages. Workers with higher skills and in higher skilled
occupations are also likely to benefit and perhaps substantially. On the other hand, workers in
import-competing industries and occupations may well see their activities contract; for those
workers that remain, wages may actually increase, but for those that exit and migrate to
different occupations or different sectors, earnings losses can be substantial. Offshoring and
trade in tasks merely expand the scope for productivity and wage gains from this process – but
they also expand the scope for losses, though the effects in the aggregate appear to be minimal.

1.4. Trade and inequality

Even if trade facilitates growth in average per capita incomes and wages, the effects are not
uniform. Averages may mask a “polarisation” in employment – and, by creating high-skilled,
high-wage jobs and jobs in low-wage but non-routine tasks, while hollowing out less skilled
middle wage jobs (Davidson and Matusz, 2004), that may contribute to a worsening of income
distribution. Thus, the role of trade and globalisation in changes in income distribution and Commented [1]: 1

wage inequality merit special review.

Is trade a driver of income inequality–

Inequality has increased in most high income countries since the 1980s (OECD, 2011a).26
According to the OECD.s Divided We Stand study, in 17 of the 22 countries for which
long-term data exist, income inequality worsened, three remained roughly the same and two
recorded reduced inequality. Many developing countries also exhibit a trend of rising inequality,
including China and other East Asian countries, India, and about half of Latin American
countries, while Eastern Europe and Africa lack reliable data to assert dominance of one trend
over another (World Bank, 2006:45-46). Another measure, albeit partial, points in the same
direction: labour.s share of national income has fallen since the 1990s in “nearly three quarters
of the 69 countries” for which data were available (ILO, 2011b: 56).

More recently, within the OECD, the latest trends in the 2000s showed a widening gap
between rich and poor, not only in some of the already high inequality countries like Israel and
the United States, but also – for the first time – in traditionally low-inequality countries, such as
Germany, Denmark, and Sweden (and other Nordic countries), where inequality grew more than
anywhere else in the 2000s. At the same time, Chile, Brazil, Mexico, Greece, Turkey, and
Hungary reduced income inequality considerably – often from very high initial levels. In fact, in Commented [2]: 2. David

Latin America, a region with perennially high inequality, 12 of 17 countries for which data were
available reduced income inequality between 2000 and 2007 (Gasparini and Lustig, 2011,
Birdsall et al., 2011). These conflicting trends led Scarpetta et al. (OECD, 2011a) to posit that
perhaps there is a global trend toward a similar level of inequality, higher than that in the 1990s,
but more uniform across countries.

The same OECD study analysed the determinants of changing income inequality, focusing
on three factors – globalisation, technology and employment policies. Globalisation is of
concern because it may be coupled with rising imports and related job dislocation. Moreover,
theory would suggest that in wealthy countries skilled workers benefit as trade opening creates
demand for their products and services while imports and outsourcing compete away
less-skilled jobs.
But the world in more complex than this one dimensional construct. The study found that
“neither rising trade integration nor financial openness had a significant impact on either wage
inequality or employment trends within the OECD countries” (OECD, 2011a:29). Even when
only the effects of import penetration from emerging countries were considered, the effects of
trade on wage-inequality appeared neutral. Regulation and employment protection legislation
did have an impact. In countries with weaker employment protection legislation, imports from
low-income countries did tend to heighten wage dispersion. Foreign direct investment and its
offshoring activities were also found to play a role, but the most important source was
technological change.

These findings are consistent with those of the IMF (2007). The IMF team looked at factors
determining changes in Gini coefficients for both developed and developing countries, and
found that globalisation was less important than technological change, as well as other factors in
both rich and poor countries. While globalisation – including measures of international capital
flows and trade – did have an impact on income inequality in rich countries, it was outward
FDI, not trade that led to this impact. For developing countries, neither globalisation nor its
subcomponents were associated with rising income inequality. To the contrary, trade openness
in fact contributed to greater income equality in developing countries.

Whereas the studies above focused on trade openness, a study by Gourdon, Maystre and
de Melo (2008), focused on the role of trade liberalisation in countries with differing factor
proportions, not only skilled and unskilled labour but also differing endowments of natural
resources and technology. This study used Gini coefficients as the measure of inequality and
considered the changes in within country income inequality in 61 countries between 1980-2000
as well as a different data set with 55 countries for 1998-2008. They interacted various measures
of factor endowments with tariff reductions.