Technology:

 The Ricardian trade model puts forward the relative differences in technology as the leading factor for cross country comparative advantage and diverging factor prices. The theory of technological differences is intrinsically linked to trade theory in explaining wage inequality. Technology can be used to explain the difference in relative factor prices due to a productivity advantage especially in those skill intensive fields with a larger profit mark-up. These goods are then traded with countries who may lack the required skill level or technology to produce it themselves. In this way technology and trade are linked as this process raises the wages of skilled labour relative to unskilled labour across the world.

According to the OECD, imports from low-wage countries account for only 10-20% of wage change in developed countries. Much of the rest is attributed to 'skill-based technological change'. This shows us that the developed countries are now adopting more technologies that require a higher level of skill ⁽¹⁴⁾

Skill-Biased technological change is the idea that the technological advances constantly added into the labour market act as replacements to unskilled labour and compliments to skilled labour. This in turn lowers the demand for unskilled labour and increases the demand for skilled labour, whom are able to use the new technological advances. The classical example of this is the introduction of personal computers into almost every industry. Those workers that are comuputer literate earn a premium for this skill; there is a trend for those whom use computers to be more educated than those who don't. Whilst skill-biased technological change is commonly associated with wage inequality, it is hard to measure as there is no commonly accepted measurement of technological change; especially seeing as the largest increase in wage inequality occurred in the 1970's despite the information revolution mostly occurring in the 1980's.

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