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Trade liberalization and the evolution of skill earnings differentials in Brazil

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  • Gonzaga, Gustavo
  • Menezes Filho, Naercio
  • Terra, Cristina

Abstract

Skilled labor earnings differentials decreased during the trade liberalization implemented in Brazil from 1988 to 1995. This paper investigates the role of trade liberalization in explaining these relative earnings movements. We perform several independent empirical exercises that check the traditional trade transmission mechanism, using disaggregated data on tariffs, prices, earnings, employment and skill intensity. We find that: i) employment shifted from skilled to unskilled intensive sectors, and each sector increased its relative share of skilled labor; ii) relative prices fell in skill intensive sectors; iii) tari¤ changes across sectors were not related to skill intensities, but the pass-through from tariffs to prices was larger in skill intensive sectors; iv) the decline in skilled earnings differentials mandated by the price variation predicted by trade was even larger than the observed one. The results are compatible with trade liberalization accounting for the observed relative earnings changes in Brazil. They also highlight the importance of considering the effects of differentiated pass-through from tariffs to prices.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 68 (2006)
Issue (Month): 2 (March)
Pages: 345-367

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Handle: RePEc:eee:inecon:v:68:y:2006:i:2:p:345-367

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Web page: http://www.elsevier.com/locate/inca/505552

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  1. Alan Krueger, 1997. "Labor Market Shifts and the Price Puzzle Revisited," Working Papers 754, Princeton University, Department of Economics, Industrial Relations Section..
  2. Terra, Maria Cristina T. & Gonzaga, Gustavo & Menezes Filho, Naércio Aquino, 2002. "Trade Liberalization and the Evolution of Skill Earnings Differentials in Brazil," Economics Working Papers (Ensaios Economicos da EPGE) 457, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
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  6. Miguel Székely & Nancy Birdsall & Jere R. Behrman, 2000. "Economics Reform and Wage Differentials in Latin America," Research Department Publications 4235, Inter-American Development Bank, Research Department.
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