Wood looks at the relationship between international trade and wage inequality in his book _North-South Trade, Employment, and Inequality._He argues that the growth of manufacturing exports from newly industrializing economies can explain the rise in earnings inequality throughout the industrialized world. Wood believes that free trade between low wage and high waged countries leads towards a relative price factor convergence. The South (low waged countries) is endowed with uneducated labour and high supply of low skilled workers, whereas the North (high wage countries) richly endowed with highly skilled labour. So due to the variance in factor endowments North produces goods not produced in the South, going against the Heckscher-Ohlin assumption that both will produce the same commodities. Therefore, it shows that the factor price equalization theorem to be invalid. 

Both the North and South gain from this trading relationship. The relative wages of workers with basic education in the South will rise, however low skilled workers in the North may suffer as a result. On the other hand, the relative wage of the highly skilled workers in the South will decline, but will increase in the North.

Wood looks at a wide range of evidence to examine whether North-South trade has resulted in the predicted effect on demands for less skilled labour in the North and South. It can be seen that wage differentials between skilled and unskilled workers increased in the 1980s in many industrialized countries, in particular in the US. Wood claims that the timing of this is consistent with the trade explanation, as manufactured exports from the South to the North increased significantly during this period. Rise in earnings inequality between the less skilled tended to be greater in countries where manufactured imports from the South rose the quickest, which is also consistent with the trade explanation.

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