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Skill classification does matter: estimating the relationship between trade flows and wage inequality

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  • Kristin Forbes

Abstract

Empirical work must pay careful attention to how it measures the relative skill abundance of countries and the relative skill intensity embodied in trade flows. This paper compiles a new data set, using income levels, average education, manufacturing wages, and an index of these three variables, to classify countries and trade flows as relatively high skill or low skill. Then, in order to show the importance of skill classification, it uses a reduced-form fixed-effects model to estimate the relationship between trade flows and wage inequality. This specification not only controls for any time-invariant omitted variables, but also permits the inclusion of a large number of diverse countries. When more accurate skill rankings are utilized, results suggest that, in high-skill abundant countries, increased trade with lower-skill countries is correlated with an increase in wage inequality. This relationship is significant and highly robust and is driven by the negative relationship between trade and low-skill wages (instead of a positive relationship between trade and high-skill wages.) Results, however, are highly dependent on the skill classification utilized.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/09638190110039046
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal The Journal of International Trade & Economic Development.

Volume (Year): 10 (2001)
Issue (Month): 2 ()
Pages: 175-209

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Handle: RePEc:taf:jitecd:v:10:y:2001:i:2:p:175-209

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Related research

Keywords: Trade; Wages; Inequality; Skill;

References

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Citations

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Cited by:
  1. Dumont, Michel, 2006. "The reliability-or lack thereof-of data on skills," Economics Letters, Elsevier, vol. 93(3), pages 348-353, December.
  2. Rigby, D L & Breau, Sebastien, 2007. "Impacts of Trade on Wage Quality in Los Angeles: Analysis Using Matched Employer-Employee Data," Center for Global, International and Regional Studies, Working Paper Series qt0fh5z1hf, Center for Global, International and Regional Studies, UC Santa Cruz.
  3. Johannes Fedderke & Yongcheol Shin, 2004. "Trade, Technology and Wage Inequality in the South African Manufacturing Sectors," ESE Discussion Papers 106, Edinburgh School of Economics, University of Edinburgh.
  4. Laura Márquez-Ramos, 2013. "The effect of fragmentation on skill and industry wage premiums: Evidence from the European Union," Working Papers 2013/18, Economics Department, Universitat Jaume I, Castellón (Spain).
  5. David Rigby & Sebastien Breau, 2006. "Impacts of Trade on Wage Inequality in Los Angeles: Analysis Using Matched Employer-Employee Data," Working Papers 06-12, Center for Economic Studies, U.S. Census Bureau.

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