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Trade liberalization and the evolution of skill earnings differentials in Brazil

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

Abstract

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 tariffs, prices, earnings, 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 was even larger than the observed one. The results are compatible with trade liberalization accounting for the observed relative earnings changes in Brazil. They also highlight the importance of considering the effects of differentiated pass-through from tariffs to prices.

Suggested Citation

  • Gonzaga, Gustavo Maurício & Menezes Filho, Naércio Aquino & Terra, Maria Cristina T., 2005. "Trade liberalization and the evolution of skill earnings differentials in Brazil," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 585, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
  • Handle: RePEc:fgv:epgewp:585
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    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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