Albanian Trade and Wage Inequality: Skilled versus Unskilled Workers’ Case

This paper examines the impact of foreign trade on wage inequalities between skilled and unskilled workers in Albania. Although the relationship between trade and wage inequality has been widely studied in developing countries, still researches on this matter are scarce for the case of Albania. To investigate this matter further an Ordinary Least Square (OLS) regression is run. The data used are annual observations from 1985 to 2014 retrieved from INSTAT and Statistical Yearbook of Albania 1991, including the wage ratio between skilled and unskilled workers according to professional categories. Empirical analyses suggest that trade has contributed to increasing wage inequality in Albania, in contradiction to what the traditional view of Heckscher- Ohlin theorem claims. The results also indicate that trade accounts only partially in wage inequalities. Other factors like technological bias, demographic variables and net exports may be accountable in increasing inequalities on skill premium. The rising wage inequality should be a case of concern for the country’s policymakers to come up with appropriate solutions against poverty and inequality, and an important area of study for future researches to better determine the factors behind the wage gap.