Borjas and Ramey state flatly that "foreign competition in highly concentrated industries can account for much of the trend in wage inequality from 1963 to 1988".⁴ They describe a model where foreign trade can affect earnings distribution, focusing on wages in the US. It claims most US manufacturing workers have basic education. Highly concentrated manufacturing industries obtain wage premiums due to significant rents earned in such industries which are then distributed between workers. Foreign competition will eat away at the rents that the US producers previously enjoyed, reducing the wage premium of the remaining workers. Those who were forced to leave the industries attempted to find employment in other industries, resulting in a fall of the equilibrium wage received by equivalently skilled workers. The less educated particularly suffered from a change in wage.

Borjas and Ramey (1994) also try to explain the trend in the relative wage of male college graduates with the wage of male high school graduates and the wage of male high school dropouts. Statistical tests indicate that the US trade deficit in durable goods has the same pattern as the relative pay differential for male college graduates. Further to this, changes in the trade deficit were then followed by changes in the pay differential, indicating that movements in net durable goods imports may in fact cause movements in the pay differentials. A regression analysis of college pay differentials on net durable imports from 1963 to 1979 clearly forecasts the growth in the wage gap between 1980 and 1988. Thus, implying that changes in durable goods imports can explain the boost in college pay premium from 1979 onwards.

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