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Trade liberalization and the inter-industry wage premia: the missing role of productivity

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  • Louren篠S. Paz

Abstract

The literature concerning the effect of tariffs on the inter-industry wage premium has not addressed the role of total factor productivity (TFP) in determining both the wage premium and tariffs. This omission not only overlooks an important determinant of wage premium but also invalidates the use of the pre-reform tariff level as an instrument for the change in tariffs. Based on an analysis of Colombian data, I find that including TFP in the estimated model of the effects of tariffs on the wage premium leads to a 41% decrease in the effect of tariffs on the inter-industry wage premium relative to the model that omits TFP. More specifically, a 10 percentage point decrease in tariffs reduces the wage premium by 1.01%, whereas a 10% increase in TFP raise wage premium by 1.6%. This finding suggests the importance of using policies that boost productivity to offset the effect of tariffs on the wage premium.

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  • Louren篠S. Paz, 2014. "Trade liberalization and the inter-industry wage premia: the missing role of productivity," Applied Economics, Taylor & Francis Journals, vol. 46(4), pages 408-419, February.
    • Handle: RePEc:taf:applec:v:46:y:2014:i:4:p:408-419
    DOI: 10.1080/00036846.2013.848031
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    3. Evangelia Papapetrou & Pinelopi Tsalaporta, 2016. "Inter-industry wage differentials in Greece: rent-sharing and unobserved heterogeneity hypotheses," Working Papers 213, Bank of Greece.

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    More about this item

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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