Unemployment rates in the North rose between the 1960s and the late 1980s. The hypothesis of this book is that the rise in unemployment was caused by expansion of trade with the South, in conjunction with rigidity of wage differentials. Alternative explanations such as oil shocks and hysteresis seem less convincing. The estimated size of the impact of trade on the relative demand for skilled and unskilled labour is consistent with the actual size of the increase in unemployment. The trade hypothesis is also able to explain variation in the size of this increase across Northern countries....

Unemployment rates in the North rose between the 1960s and the late 1980s. The hypothesis of this book is that the rise in unemployment was caused by expansion of trade with the South, in conjunction with rigidity of wage differentials. Alternative explanations such as oil shocks and hysteresis seem less convincing. The estimated size of the impact of trade on the relative demand for skilled and unskilled labour is consistent with the actual size of the increase in unemployment. The trade hypothesis is also able to explain variation in the size of this increase across Northern countries. Other forces, however, were also acting on unemployment rates during this period.