Trade and Wages: Winning and Losing Sectors in the Enlarged European Union
This paper contributes to the abundant but as yet inconclusive literature on the effect increased openness to trade has on wages by presenting an analysis of industry-level data for 21 service and manufacturing industries in 25 EU countries covering the period from 1995 to 2005. By applying a cross-country and industry-specific approach, it is possible to control for unobserved heterogeneity at both country and industry levels. While we are able to identify some – often resource-based – industries as winners of increased trade integration, we find very few and comparatively small effects in general. The relation between trade and wages tends to be weaker in Western European countries (EU-15) than in the EU Member States in Central and Eastern Europe (EU-10). At the same time, greater trade openness appears to have increased the influence wage levels abroad – as opposed to productivity – have on wage setting in the EU-15. By contrast, wages in the EU-10 have become less responsive to foreign wages and more realigned with productivity developments as a result of trade openness.
Volume (Year): (2009)
Issue (Month): 1 ()
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