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Adjustment Costs of Trade Liberalization: Estimations for the Russian Labor Market

Author

Listed:
  • Akhmed Akhmedov

    () (CEFIR)

  • Evgenia Bessonova

    () (CEFIR)

  • Ivan Cherkashin

    (Penn State University)

  • Irina Denisova

    () (CEFIR/New Economic School)

  • Elena Grishina

    (Moscow Urban Institute)

Abstract

The paper investigates adjustment costs of trade liberalization in Russia by estimating the influence of tariff policy in the 90-ies on the level and volatility of employment and wages. In particular, we study the labor demand and labor supply channels and address the following issues. First, how does labor demand by firms respond to trade shocks? Second, what is the effect of trade developments on wage dispersion across sectors? Third, what is the effect of trade changes on the wage gap between skilled and unskilled workers? We use balance sheets of Russian large and medium enterprises for 1995-2001 to estimate labor demand equations and to calculate possible changes in employment due to various shocks in output and tariffs. Our sample comprises of more than 53 thousand enterprises and is nationally and industry-level representative. The analysis of the labor supply channel is based on Russian Longitudinal Monitoring Survey (RLMS), years 1995-2002, matched with sectoral indicators of trade liberalization. RLMS is a nationally representative panel survey of households’ members on a large number of issues. We find low magnitudes of responsiveness of the labor demand to trade shocks, both through the indirect effect of output changes and directly through the influence of tariffs and import penetration. This suggests that the adjustment costs to expected trade liberalization in the form of changes in industrial labor demand should not be high. We also find that trade liberalization does not have a significant effect on wages. It is likely that tariff reduction and trade liberalization would lead to only slight increase in the wage differentials between skilled and unskilled labor. It is obtained that there is no significant effect of tariffs on wages and wage premiums. Therefore, no significant evidence for the claim that “workers in more protected industries earn relatively more” is found. The latter implies that workers would not lose much after further trade liberalization provided they could move to trade exposed industries. The increase in tariff levels is likely to be associated with the increase in wage gap between skilled and unskilled labor. But the evidence for this conclusion is not very strong, because the industry affiliation does not explain much of the wage variation between skilled and unskilled workers. Overall, the adjustment costs of anticipated trade liberalization are likely to be much smaller than expected as the analysis of the influence of previous trade shocks on the Russian economy shows.

Suggested Citation

  • Akhmed Akhmedov & Evgenia Bessonova & Ivan Cherkashin & Irina Denisova & Elena Grishina, 2005. "Adjustment Costs of Trade Liberalization: Estimations for the Russian Labor Market," Working Papers w0086, Center for Economic and Financial Research (CEFIR).
  • Handle: RePEc:cfr:cefirw:w0086
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    File URL: http://www.cefir.ru/papers/WP86Denisova_LaborAdjustment_Lubeck.pdf
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    References listed on IDEAS

    as
    1. Brown, J. David & Earle, John S., 2002. "Gross Job Flows in Russian Industry Before and After Reforms: Has Destruction Become More Creative?," Journal of Comparative Economics, Elsevier, vol. 30(1), pages 96-133, March.
    2. Pinelopi K. Goldberg & Nina Pavcnik, 2001. "Trade Protection and Wages: Evidence from the Colombian Trade Reforms," NBER Working Papers 8575, National Bureau of Economic Research, Inc.
    3. Cragg, Michael Ian & Epelbaum, Mario, 1996. "Why has wage dispersion grown in Mexico? Is it the incidence of reforms or the growing demand for skills?," Journal of Development Economics, Elsevier, vol. 51(1), pages 99-116, October.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Guriev, Sergei & Vakulenko, Elena, 2015. "Breaking out of poverty traps: Internal migration and interregional convergence in Russia," Journal of Comparative Economics, Elsevier, vol. 43(3), pages 633-649.

    More about this item

    Keywords

    Labor Market; Trade Liberalization; Labor Demand; Wage Premiums; Employment Flows;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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