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Trade liberalization and the evolution of skill earnings differentials in Brazil

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  • Gustavo Gonzaga

    ()
    (Department of Economics PUC-Rio)

  • Naércio Menezes Filho

    (IBMEC-SP and USP)

  • Maria Cristina Terra

    (EPGE/FGV)

Abstract

Skilled labor earnings differentials decreased during the trade liberalization implemented in Brazil from 1988 to 1995. This paper investigates the role of trade liberalization in explaining these relative earnings movements. We perform several independent empirical exercises that check the traditional trade transmission mechanism, using disaggregated data on tariffs, prices, earnings, employment and skill intensity. We find that: i) employment shifted from skilled to unskilled intensive sectors, and each sector increased its relative share of skilled labor; ii) relative prices fell in skill intensive sectors; iii) tari¤ changes across sectors were not related to skill intensities, but the pass-through from tariffs to prices was larger in skill intensive sectors; iv) the decline in skilled earnings differentials mandated by the price variation predicted by trade was even larger than the observed one. The results are compatible with trade liberalization accounting for the observed relative earnings changes in Brazil. They also highlight the importance of considering the effects of differentiated pass-through from tariffs to prices.

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Bibliographic Info

Paper provided by Department of Economics PUC-Rio (Brazil) in its series Textos para discussão with number 503.

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Length: 39p
Date of creation: Aug 2005
Date of revision:
Publication status: Published in Journal of International Economics, 68(2): 345-367, 2006
Handle: RePEc:rio:texdis:503

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