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International Competition, Returns to Skill and Labor Market Adjustment


  • Rod Falvey
  • David Greenaway
  • Joana Silva


This paper examines whether increased import competition induces domestic workers to skill upgrade and/or switch industries. The analysis makes use of a large unique longitudinal matched employer-employee dataset that covers virtually all workers and firms in Portugal over the 1986-2000 period. Our identification strategy uses two exogenous changes in the degree of international competition. First, we exploit the strong appreciation of the Portuguese currency in 1989-1992 and pre-existing differences in trade exposure across industries in a differences-in-differences estimation. Second, we make use of changes in industry-specific (source-weighted) real exchange rates. A bivariate probit model is used to analyse the impact of increased international competition on skill-upgrading and/or industry switching. Based on both empirical strategies, and on two different skill definitions, we find strong confirmation for the hypothesis that increased international competition increases the returns to skill and induces skill upgrading.

Suggested Citation

  • Rod Falvey & David Greenaway & Joana Silva, "undated". "International Competition, Returns to Skill and Labor Market Adjustment," Discussion Papers 08/10, University of Nottingham, GEP.
  • Handle: RePEc:not:notgep:08/10

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    References listed on IDEAS

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    4. Peter Wright & Richard Upward, 2004. "Snakes Or Ladders: Skill Upgrading And Occupational Mobility In The US And UK During The 1990s," Royal Economic Society Annual Conference 2004 114, Royal Economic Society.
    5. Falvey, Rod & Greenaway, David & Silva, Joana, 2010. "Trade liberalisation and human capital adjustment," Journal of International Economics, Elsevier, vol. 81(2), pages 230-239, July.
    6. John M. Abowd & Francis Kramarz & Sébastien Roux, 2006. "Wages, Mobility and Firm Performance: Advantages and Insights from Using Matched Worker-Firm Data," Economic Journal, Royal Economic Society, vol. 116(512), pages 245-285, June.
    7. Barham, Vicky & Boadway, Robin & Marchand, Maurice & Pestieau, Pierre, 1995. "Education and the poverty trap," European Economic Review, Elsevier, vol. 39(7), pages 1257-1275, August.
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    9. Pinelopi Koujianou Goldberg & Nina Pavcnik, 2007. "Distributional Effects of Globalization in Developing Countries," Journal of Economic Literature, American Economic Association, vol. 45(1), pages 39-82, March.
    10. repec:dau:papers:123456789/10093 is not listed on IDEAS
    11. Marianne Bertrand, 2004. "From the Invisible Handshake to the Invisible Hand? How Import Competition Changes the Employment Relationship," Journal of Labor Economics, University of Chicago Press, vol. 22(4), pages 723-766, October.
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    13. Choi, E. Kwan & Harrigan, James, 2003. "Handbook of International Trade," Staff General Research Papers Archive 11375, Iowa State University, Department of Economics.
    14. Daron Acemoglu, 2002. "Technical Change, Inequality, and the Labor Market," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 7-72, March.
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    16. Eve Caroli & John Van Reenen, 2001. "Skill-Biased Organizational Change? Evidence from A Panel of British and French Establishments," The Quarterly Journal of Economics, Oxford University Press, vol. 116(4), pages 1449-1492.
    17. Greenaway, David & Nelson, Douglas, 2000. "The Assessment: Globalization and Labour-Market Adjustment," Oxford Review of Economic Policy, Oxford University Press, vol. 16(3), pages 1-11, Autumn.
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    Cited by:

    1. Nakhoda, Aadil, 2012. "The effect of foreign competition on product switching activities: A firm level analysis," MPRA Paper 39167, University Library of Munich, Germany.
    2. Sly, Nicholas, 2010. "Skill Acquisition, Incentive Contracts and Jobs: Labor Market Adjustment to Trade," MPRA Paper 25004, University Library of Munich, Germany.


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