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Trade, skill-biased technical change and wages in Mexican manufacturing

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  • Mauro Caselli

Abstract

This paper analyses and quantifies the effects of trade liberalisation and skill-biased technical change, both exogenous and trade-induced, on the skill premium and real wages of unskilled and skilled workers in the Mexican manufacturing sector, using industry- and firm-level data for 1984-1990 from the Encuesta Industrial Anual.� The novelty of the paper lies in its strategy for identifying causality, which uses differences across industries over time in the relative price of machinery and equipment in the US as an instrument for skill-biased technical change.� The effect of trade-induced SBTC on wages, and especially on wage inequality, appears substantial.� The regressions show that trade liberalisation and changes in the relative price of equipment in the US, which induce exogenous SBTC in Mexico, explain one quarter of the increase in relative skilled wages between 1984 and 1990.� This rise in the skill premium due to SBTC and trade liberalisation mainly reflect a rise in real skilled wages, although with some specifications it was amplified by a fall in the real wages of unskilled workers.

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Bibliographic Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number CSAE WPS/2010-28.

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Date of creation: 01 Aug 2010
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Handle: RePEc:oxf:wpaper:csae-wps/2010-28

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Keywords: Trade liberalisation; skill-biased technical change; wage inequality; real wages; Mexico; manufacturing;

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  1. Andrew B. Bernard & Stephen J. Redding & Peter K. Schott, 2011. "Multiproduct Firms and Trade Liberalization," The Quarterly Journal of Economics, Oxford University Press, vol. 126(3), pages 1271-1318.
  2. Elena Meschi & Erol Taymaz & Marco Vivarelli, 2009. "Trade, Technology and Skills: Evidence from Turkish Microdata," Jena Economic Research Papers, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics 2009-097, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  3. Eric Verhoogen, 2007. "Trade, quality upgrading and wage inequality in the Mexican manufacturing sector," Discussion Papers, Columbia University, Department of Economics 0607-08, Columbia University, Department of Economics.
  4. Gordon H. Hanson & Ann Harrison, 1999. "Trade liberalization and wage inequality in Mexico," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 52(2), pages 271-288, January.
  5. 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).
  6. David Atkin, 2012. "Endogenous Skill Acquisition and Export Manufacturing in Mexico," NBER Working Papers 18266, National Bureau of Economic Research, Inc.
  7. Leonardi, Marco, 2005. "Firm Heterogeneity in Capital labor Ratios and Wage Inequality," Institute for Research on Labor and Employment, Working Paper Series, Institute of Industrial Relations, UC Berkeley qt1g9514wh, Institute of Industrial Relations, UC Berkeley.
  8. Adriaan Ten Kate, 1989. "Notas Sobre La Apertura Comercial De Mexico, Experiencias Y Lecciones," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE, BANCO DE LA REPÚBLICA - ESPE.
  9. Alberto Behar, 2009. "Directed technical change, the elasticity of substitution and wage inequality in developing countries," Economics Series Working Papers 467, University of Oxford, Department of Economics.
  10. Bernard, Andrew & Redding, Stephen J & Schott, Peter, 2004. "Comparative Advantage and Heterogenous Firms," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4622, C.E.P.R. Discussion Papers.
  11. Gonzague Vannoorenberghe, 2011. "Trade between symmetric countries, heterogeneous firms, and the skill premium," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 44(1), pages 148-170, February.
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  13. Berman, Eli & Machin, Stephen, 2000. "Skill-Based Technology Transfer around the World," Oxford Review of Economic Policy, Oxford University Press, Oxford University Press, vol. 16(3), pages 12-22, Autumn.
  14. Berman, Eli & Bound, John & Griliches, Zvi, 1994. "Changes in the Demand for Skilled Labor within U.S. Manufacturing: Evidence from the Annual Survey of Manufactures," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(2), pages 367-97, May.
  15. Daron Acemoglu, 2002. "Technical Change, Inequality, and the Labor Market," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 7-72, March.
  16. Mary Amiti & Jozef Konings, 2007. "Trade Liberalization, Intermediate Inputs, and Productivity: Evidence from Indonesia," American Economic Review, American Economic Association, American Economic Association, vol. 97(5), pages 1611-1638, December.
  17. Daron Acemoglu, 1999. "Patterns of Skill Premia," NBER Working Papers 7018, National Bureau of Economic Research, Inc.
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  21. Anderson, Edward, 2005. "Openness and inequality in developing countries: A review of theory and recent evidence," World Development, Elsevier, Elsevier, vol. 33(7), pages 1045-1063, July.
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Cited by:
  1. Mauro Caselli, 2010. "Trade liberalisation, skill-biased technical change and wages in developing countries: a model with heterogeneous firms," CSAE Working Paper Series 2010-27, Centre for the Study of African Economies, University of Oxford.

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