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How Wages and Employment Adjust to Trade Liberalization: Quasi-Experimental Evidence from Austria

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  • Marius Brülhart
  • Céline Carrère
  • Frederico Trionfetti

Abstract

We study the response of regional employment and nominal wages to trade liberalization, exploiting the natural experiment provided by the opening of Central and Eastern European markets after the fall of the Iron Curtain in 1990. Using data for Austrian municipalities, we examine differential pre- and post-1990 wage and employment growth rates between regions bordering the formerly communist economies and interior regions. If the ‘border regions’ are defined narrowly, within a band of less than 50 kilometers, we can identify statistically significant liberalization effects on both employment and wages. While wages responded earlier than employment, the employment effect over the entire adjustment period is estimated to be around three times as large as the wage effect. The implied slope of the regional labor supply curve can be replicated in an economic geography model that features obstacles to labor migration due to immobile housing and to heterogeneous locational preferences.

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Bibliographic Info

Paper provided by The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria in its series NRN working papers with number 2012-02.

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Length: 38 pages
Date of creation: Feb 2012
Date of revision:
Handle: RePEc:jku:nrnwps:2012_02

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Keywords: trade liberalization; spatial adjustment; regional labor supply; natural experiment;

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Cited by:
  1. Holger Breinlich & Gianmarco I.P. Ottaviano & Jonathan R.W. Temple, 2013. "Regional growth and regional decline," Economics Discussion Papers 729, University of Essex, Department of Economics.
  2. Dauth, Wolfgang & Findeisen, Sebastian & Suedekum, Jens, 2012. "The Rise of the East and the Far East: German Labor Markets and Trade Integration," IZA Discussion Papers 6685, Institute for the Study of Labor (IZA).
  3. Dauth, Wolfgang & Suedekum, Jens, 2014. "Globalization and local profiles of economic growth and industrial change," DICE Discussion Papers 142, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  4. Geys, Benny & Osterloh, Steffen, 2012. "Borders as boundaries to fiscal policy interactions? An empirical analysis of politicians' opinions on rivals in the competition for firms," Discussion Papers, Research Professorship & Project "The Future of Fiscal Federalism" SP II 2012-113, Social Science Research Center Berlin (WZB).
  5. Georg Hirte & Christian Lessmann, 2014. "Trade, Integration, and Interregional Inequality," CESifo Working Paper Series 4799, CESifo Group Munich.
  6. Ulrich Zierahn, 2012. "The effect of market access on the labor market: Evidence from German reunification," MAGKS Papers on Economics 201239, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  7. Marius Brülhart, . "The Spatial Effects of Trade Openness: A Survey," Discussion Papers 10/10, University of Nottingham, GEP.
  8. Geys, Benny & Osterloh, Steffen, 2011. "Politicians' opinions on rivals in the competition for firms: An empirical analysis of reference points near a border," ZEW Discussion Papers 11-020, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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