Can Barriers to Trade Make a Differential?

Within the purview of economics, there are a number of phenomena that remain unexplained. One such phenomenon is the existence of inter-industry wage differentials; differences in wages paid to observationally equivalent workers. This paper investigates the link between the degree of international competition in an industry and the premium paid to workers in that industry. The rationale for this connection lies in the hypothesis that the source of the observed wage premium arises from the sharing of rents with workers in profitable industries. International competition serves to reduce the market power of firms in the industry reducing the existence of rents, in turn, reducing the wage premium. It is in this sense that barriers to trade might result in a wage differential that would not otherwise exist. Preliminary findings are that international competition does have a significant impact on both industry profitability and inter-industry wages. Further, the results indicate that the changes in competitiveness during the early 1980s altered industry wages differentials so as to reduce observed earnings inequality