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Trade Reforms and Wage Inequality in Colombia

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Author Info
Attanasio, Orazio
Goldberg, Pinelopi
Pavcnik, Nina

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Abstract

We investigate the effects of the drastic tariff reductions of the 1980s and 1990s in Colombia on the wage distribution. We identify three main channels through which the wage distribution was affected: increasing returns to college education, changes in industry wages that hurt sectors with initially lower wages and a higher fraction of unskilled workers, and shifts of the labour force towards the informal sector that typically pays lower wages and offers no benefits. Our results suggest that trade policy played a role in each of the above cases. The increase in the skill premium was primarily driven by skilled-biased technological change; however, our evidence suggests, that this change may have been in part motivated by the tariff reductions and the increased foreign competition to which the trade reform exposed domestic producers. With respect to industry wages, we find that wage premiums decreased by more in sectors that experienced larger tariff cuts. Finally, we find some evidence that the increase in the size of the informal sector is related to increased foreign competition – sectors with larger tariff cuts and more trade exposure, as measured by the size their imports, experience a greater increase in informality, though this effect is concentrated in the years prior to the labour market reform. Nevertheless, increasing returns to education, and changes in industry premiums and informality alone cannot fully explain the increase in wage inequality we observe over this period. This suggests that overall the effect of the trade reforms on the wage distribution may have been small.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4023.

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Date of creation: Aug 2003
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Handle: RePEc:cpr:ceprdp:4023

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Related research
Keywords: colombia inequality labour market trade liberalization

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Find related papers by JEL classification:
F10 - International Economics - - Trade - - - General
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Gordon H. Hanson, 2005. "Globalization, Labor Income, and Poverty in Mexico," NBER Working Papers 11027, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Eric V. Edmonds & Nina Pavcnik & Petia Topalova, 2007. "Trade Adjustment and Human Capital Investments: Evidence from Indian Tariff Reform," NBER Working Papers 12884, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Puja Vasudeva Dutta, 2004. "Trade Protection and Inter-industry Wages in India," PRUS Working Papers 27, Poverty Research Unit at Sussex, University of Sussex. [Downloadable!]
    Other versions:
  4. Benjamin Aleman-Castilla, 2006. "The Effect of Trade Liberalization on Informality and Wages: Evidence from Mexico," CEP Discussion Papers dp0763, Centre for Economic Performance, LSE. [Downloadable!]
  5. Pinelopi Koujianou Goldberg & Nina Pavcnik, 2005. "The Effects of the Colombian Trade Liberalization on Urban Poverty," NBER Working Papers 11081, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Francisco Gallego, 2006. "Skill Premium in Chile: Studying the Skill Bias Technical Change Hypothesis in the South," Working Papers Central Bank of Chile 363, Central Bank of Chile. [Downloadable!]
  7. Chinhui Juhn & Jim Airola, 2005. "Wage Inequality in Post-Reform Mexico," Working Papers 2005-01, Department of Economics, University of Houston. [Downloadable!]
    Other versions:
  8. Puja Vasudeva Dutta, 2005. "Accounting for Wage Inequality in India," PRUS Working Papers 29, Poverty Research Unit at Sussex, University of Sussex. [Downloadable!]
  9. Manoj Atolia, 2002. "Trade Liberalization and Rising Wage Inequality in Latin America: Reconciliation with HOS Theory," Working Papers wp2002_03_01, Department of Economics, Florida State University, revised Feb 2006. [Downloadable!]
    Other versions:
  10. Pham, Hung T, 2006. "Rural Nonfarm Employment Under Trade Reform Evidence From Vietnam, 1993-2002," MPRA Paper 6476, University Library of Munich, Germany. [Downloadable!]
  11. Jorge Enrique Restrepo & Andrea Tokman, 2004. "Labor Markets and Institutions: An Overview," Working Papers Central Bank of Chile 304, Central Bank of Chile. [Downloadable!]
  12. Leonardo Becchetti & Giovanni Trovato, 2004. "The Determinants of Child Labor: The Role of Primary Product Specialization," CEIS Research Paper 59, Tor Vergata University, CEIS. [Downloadable!]
    Other versions:
  13. Hernando Zuleta & Orlando Gracia, 2004. "The Free Trade Agreement between Colombia and USA: What can happen to Colombia?," INVESTIGACIÓN ECONÓMICA EN COLOMBIA 003594, FUNDACIÓN PONDO. [Downloadable!]
    Other versions:
  14. Guy Michaels, 2006. "The Effect of Trade on the Demand for Skill - Evidence from the Interstate Highway System," CEP Discussion Papers dp0772, Centre for Economic Performance, LSE. [Downloadable!]
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