TRADE-INDUCED SKILL POLARIZATION

We study how wage gaps across skills and the skill distribution in an economy respond to trade integration. Using administrative data of Denmark (1995-2011), we find that trade has a negative effect on the wage gap between secondary and primary education and a positive effect on the wage gap between tertiary and secondary education. We also show that trade affects skill distribution and induces skill polarization: trade has a positive effect on both the mean and standard deviation of skills. Wage-gap changes induced by trade shocks explain about 21%-30% of the effect of trade on skills.