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Trade Liberalization and the Evolution of Skill Earnings Differentials in Brazil

  • Gustavo Gonzaga

    (Department of Economics, Ponti cal Catholic University, Rio)

  • Naércio Menezes Filho

    (Department of Economics, University of São Paulo)

  • Cristina Terra

    (Graduate School of Economics, Fundação Getulio Vargas)

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 tari¤s, prices, wages, 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) tariff 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 is very close to the observed one. The results are compatible with trade liberalization accounting for the observed relative earnings changes in Brazil.

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Paper provided by Centro Studi Luca d'Agliano, University of Milano in its series Development Working Papers with number 216.

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Length: 37
Date of creation: 23 Jun 2006
Date of revision:
Handle: RePEc:csl:devewp:216
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  1. Jere R. Behrman & Nancy Birdsall & Miguel Székely, 2003. "Economic Policy and Wage Differentials in Latin America," Working Papers 29, Center for Global Development.
  2. Terra, Maria Cristina T. & Gonzaga, Gustavo Maurício & Menezes Filho, Naércio Aquino, 2002. "Trade liberalization and the evolution of skill earnings differentials in Brazil," Economics Working Papers (Ensaios Economicos da EPGE) 457, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
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  14. Baldwin, Robert E & Cain, Glen C, 1997. "Shifts in US Relative Wages: The Role of Trade, Technology and Factor Endowments," CEPR Discussion Papers 1596, C.E.P.R. Discussion Papers.
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  20. Alan B. Krueger, 1997. "Labor Market Shifts and the Price Puzzle Revisited," NBER Working Papers 5924, National Bureau of Economic Research, Inc.
  21. John Romalis, 2004. "Factor Proportions and the Structure of Commodity Trade," American Economic Review, American Economic Association, vol. 94(1), pages 67-97, March.
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