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Wage Effects of Trade Reform with Endogenous Worker Mobility

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  • Krishna, Pravin
  • Poole, Jennifer P.
  • Senses, Mine Zeynep

Abstract

In this paper, we use a linked employer–employee database from Brazil to evaluate the wage effects of trade reform. With an aggregate (firm-level) analysis of this question, we find that a decline in trade protection is associated with an increase in average wages in exporting firms relative to domestic firms, consistent with earlier studies. However, using disaggregated, employer–employee level data, and allowing for the endogenous assignment of workers to firms due to match-specific productivity, we find that the premium paid to workers at exporting firms is economically and statistically insignificant, as is the differential impact of trade openness on the wages of workers at exporting firms relative to otherwise identical workers at domestic firms. We also find that workforce composition improves systematically in exporting firms, in terms of the combination of worker ability and the quality of worker–firm matches, post-liberalization. These results stand in stark contrast to the findings reported in many earlier studies and underscore the importance of endogenous matching and, more generally, non-random labor market allocation mechanisms, in determining the effects of trade policy changes on wages.

Suggested Citation

  • Krishna, Pravin & Poole, Jennifer P. & Senses, Mine Zeynep, 2014. "Wage Effects of Trade Reform with Endogenous Worker Mobility," Journal of International Economics, Elsevier, vol. 93(2), pages 239-252.
  • Handle: RePEc:eee:inecon:v:93:y:2014:i:2:p:239-252
    DOI: 10.1016/j.jinteco.2014.03.003
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    More about this item

    Keywords

    Trade liberalization; Linked employer–employee data; Endogenous mobility;
    All these keywords.

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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