Does international competition undermine wage differentials and increase inequality?

I develop a model where the mode of competition in trade affects wage differentials. Imports undermine wage premia under quantity competition and increase premia under price competition. I test these predictions after combining industry-level data with premia estimated by quantile regressions. Wage premia and imports are positively related for union and negatively related for nonunion workers. As predicted, the positive relationship is limited to unconstrained industry-years, and the negative relationship arises only in constrained industry-years. These trade effects account for 49% of the observed increase in wage inequality for union and 9% for nonunion manufacturing workers from 1984 to 1991. (C) 2000 Elsevier Science B.V, All rights reserved.