Assessing Labour Market Impacts of Trade Opening in Uruguay

The analysis of the links between trade policy and labour market outcomes has developed in recent decades, prompt up by the concerns about the effects of the increasing globalisation process in which trade plays a major role. In this work we propose to analyse the impact of the increase in trade liberalisation, as a consequence of Mercosur’s creation on employment, income and wage dispersion at the household level. To this aim we use data from the Encuesta Continua de Hogares (ECH) for the period 1988 and 1996 and apply impact evaluation techniques in order to isolate the effect of trade reforms from other policies at work during the period. One of the most robust findings that emerge using difference-in-difference regressions as well as double robust estimators and inverse probability weighting is that in the period following Mercosur’s creation there was an increase in monthly earnings and hourly labour earnings as well as a significant increase in the probability of unemployment and increased wage dispersion.