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Trade liberalization and the evolution of skill earnings differentials in Brazil

  • Terra, Maria Cristina T.
  • Gonzaga, Gustavo Maurício
  • Menezes Filho, Naércio Aquino

From 1988 to 1995, when trade liberalization was implemented in Brazil, relative earnings of skilled workers decreased. In this paper, we investigate the role of trade liberalization in explaining these relative earnings movements, by checking all the steps predicted by the Heckscher-Ohlin-style trade transmission mechanism. 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 felI in skill intensive sectors; iii) tariíf changes across sectors were not related to skill intensities, but the pass-through from tariffs to prices was stronger in skill intensive sectors; iv) the decline in skilled earnings differentials mandated by the price variation predicted by trade is very dose 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 FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil) in its series Economics Working Papers (Ensaios Economicos da EPGE) with number 457.

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Date of creation: 23 Oct 2002
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Handle: RePEc:fgv:epgewp:457
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  1. Daron Acemoglu, 2000. "Technical Change, Inequality, and the Labor Market," NBER Working Papers 7800, National Bureau of Economic Research, Inc.
  2. Berman, Eli & Bound, John & Machin, Stephen, 1997. "Implications of Skill-Biased Technological Change: International Evidence," Working Paper Series 486, Research Institute of Industrial Economics.
  3. 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).
  4. Miguel Székely & Nancy Birdsall & Jere R. Behrman, 2000. "Economics Reform and Wage Differentials in Latin America," IDB Publications (Working Papers) 6476, Inter-American Development Bank.
  5. Eli Berman & John Bound & Zvi Griliches, 1993. "Changes in the Demand for Skilled Labor within U.S. Manufacturing Industries: Evidence from the Annual Survey of Manufacturing," NBER Working Papers 4255, National Bureau of Economic Research, Inc.
  6. Alan B. Krueger, 1997. "Labor Market Shifts and the Price Puzzle Revisited," NBER Working Papers 5924, National Bureau of Economic Research, Inc.
  7. Rudiger Dornbusch & Stanley Fischer & Paul A. Samuelson, 1980. "Heckscher-Ohlin Trade Theory with a Continuum of Goods," The Quarterly Journal of Economics, Oxford University Press, vol. 95(2), pages 203-224.
  8. Daron Acemoglu, 1999. "Patterns of Skill Premia," NBER Working Papers 7018, National Bureau of Economic Research, Inc.
  9. R. E. Baldwin & G. G. Cain, . "Shifts in U.S. Relative Wages: The Role of Trade, Technology, and Factor Endowments," Institute for Research on Poverty Discussion Papers 1132-97, University of Wisconsin Institute for Research on Poverty.
  10. Jonathan E. Haskel & Matthew J. Slaughter, 2003. "Have Falling Tariffs and Transportation Costs Raised US Wage Inequality?," Review of International Economics, Wiley Blackwell, vol. 11(4), pages 630-650, 09.
  11. David H. Autor & Lawrence F. Katz & Alan B. Krueger, 1998. "Computing Inequality: Have Computers Changed the Labor Market?," The Quarterly Journal of Economics, Oxford University Press, vol. 113(4), pages 1169-1213.
  12. Robertson, Raymond, 2004. "Relative prices and wage inequality: evidence from Mexico," Journal of International Economics, Elsevier, vol. 64(2), pages 387-409, December.
  13. John Romalis, 2004. "Factor Proportions and the Structure of Commodity Trade," American Economic Review, American Economic Association, vol. 94(1), pages 67-97, March.
  14. Thoenig, Mathias & Verdier, Thierry, 2002. "A Theory of Defensive Skill-based Innovation and Globalization," CEPR Discussion Papers 3416, C.E.P.R. Discussion Papers.
  15. Alan Krueger, 1997. "Labor Market Shifts and the Price Puzzle Revisited," Working Papers 754, Princeton University, Department of Economics, Industrial Relations Section..
  16. Gordon H. Hanson & Ann Harrison, 1999. "Trade Liberalization and Wage Inequality in Mexico," ILR Review, Cornell University, ILR School, vol. 52(2), pages 271-288, January.
  17. Johnson, George & Stafford, Frank, 1999. "The labor market implications of international trade," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 34, pages 2215-2288 Elsevier.
  18. Eli Berman & John Bound & Zvi Griliches, 1994. "Changes in the Demand for Skilled Labor within U. S. Manufacturing: Evidence from the Annual Survey of Manufactures," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 367-397.
  19. Jere R. Behrman & Nancy Birdsall & Miguel Székely, 2003. "Economic Policy and Wage Differentials in Latin America," Working Papers 29, Center for Global Development.
  20. repec:fth:prinin:375 is not listed on IDEAS
  21. Beyer, Harald & Rojas, Patricio & Vergara, Rodrigo, 1999. "Trade liberalization and wage inequality," Journal of Development Economics, Elsevier, vol. 59(1), pages 103-123, June.
  22. repec:pri:indrel:375 is not listed on IDEAS
  23. Matthew J. Slaughter, 2000. "What Are the Results of Product-Price Studies and What Can We Learn from Their Differences?," NBER Chapters, in: The Impact of International Trade on Wages, pages 129-169 National Bureau of Economic Research, Inc.
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