By Wal-Mart effect I mean the impact of consumption inequality, specifically the price effect of trade. This new study by Broda and Romalis, University of Chicago: Inequality and Prices: Does China Benefit the Poor in America? [PDF] examines both income and prices data 1994 - 2005:
…The debate on trade and wages in the U.S. has entirely focused on the impact that trade with developing countries has on the wages of the unskilled in America. This debate has overlooked the impact that trade has on prices of the goods consumed by different income groups. In particular, since developing countries typically produce low quality goods that are disproportionately consumed by the poor in America, this implies that inequality measures that do not correct for differences in the basket of goods consumed by rich and poor neglect this “price” effect of trade. Using detailed household consumption data between 1994 and 2005, we find that this “price effect” offsets almost all the rise in inequality measured by official statistics over this period.
Tyler Cowen has some comments on the study, closing with this
…If this holds up it is big, big news and we must revise many claims that have been made about inequality, trade, and China.
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