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Wage Implications of Trade Liberalisation: Evidence for Effective Policy Formation

Author

Listed:
  • Susan Stone

    (OECD)

  • Ricardo Cavazos Cepeda

    (OECD)

Abstract

The relationship between trade and wages has been subject to intense scrutiny in the academic literature with no clear consensus emerging. This paper adds to this body of research by moving beyond the single country analysis level to a panel including developed and developing countries and data through the mid 2000.s. First we examine the relationship between wages and trade using the approach of Feenstra and Hanson to calculate mandated wage changes for our dataset. We find that imports have a significant and positive impact on wages while the sign on tariffs is negative and significant. We also look at the relationship of wage differentials at the occupation level between partner countries. We find that the difference in occupation wage is smaller for large trade partners. Finally, we discuss the potential role of NTMs in influencing the wage and trade relationship.

Suggested Citation

  • Susan Stone & Ricardo Cavazos Cepeda, 2011. "Wage Implications of Trade Liberalisation: Evidence for Effective Policy Formation," OECD Trade Policy Papers 122, OECD Publishing.
  • Handle: RePEc:oec:traaab:122-en
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    File URL: http://dx.doi.org/10.1787/5kg3r80brt9n-en
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    References listed on IDEAS

    as
    1. Robert C. Feenstra & Gordon H. Hanson, 1999. "The Impact of Outsourcing and High-Technology Capital on Wages: Estimates For the United States, 1979–1990," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 907-940.
    2. Attanasio, Orazio & Goldberg, Pinelopi K. & Pavcnik, Nina, 2004. "Trade reforms and wage inequality in Colombia," Journal of Development Economics, Elsevier, vol. 74(2), pages 331-366, August.
    3. Krugman, Paul R., 2000. "Technology, trade and factor prices," Journal of International Economics, Elsevier, pages 51-71.
    4. Matthew J. Slaughter, 1999. "Globalisation and Wages: A Tale of Two Perspectives," The World Economy, Wiley Blackwell, vol. 22(5), pages 609-629, July.
    5. 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, September.
    6. Robert Z. Lawrence & Lawrence Edward, 2010. "US Trade and Wages: The Misleading Implications of Conventional Trade Theory," Working Paper Series WP10-9, Peterson Institute for International Economics.
    7. Guillaume Gaulier & Julien Martin & Isabelle Méjean & Soledad Zignago, 2008. "International Trade Price Indices," Working Papers 2008-10, CEPII research center.
    8. Liu, Jing & Nico van Leeuwen & Tri Thanh Vo & Rod Tyers & Thomas W. Hertel, 1998. "Disaggregating Labor Payments by Skill Level in GTAP," GTAP Technical Papers 314, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
    9. Harrison, Ann E., 1994. "Productivity, imperfect competition and trade reform : Theory and evidence," Journal of International Economics, Elsevier, vol. 36(1-2), pages 53-73, February.
    10. Gene M. Grossman & Esteban Rossi-Hansberg, 2008. "Trading Tasks: A Simple Theory of Offshoring," American Economic Review, American Economic Association, vol. 98(5), pages 1978-1997, December.
    11. Michel Dumont & Glenn Rayp & Olivier Thas & Peter Willemé, 2005. "Correcting Standard Errors in Two-stage Estimation Procedures with Generated Regressands," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 67(3), pages 421-433, June.
    12. Susan Stone & Ricardo Cavazos Cepeda & Anna Jankowska, 2011. "The Role of Factor Content in Trade: Have Changes in Factor Endowments Been Reflected in Trade Patterns and on Relative Wages?," OECD Trade Policy Papers 109, OECD Publishing.
    13. 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.
    14. Mary O'Mahony & Marcel P. Timmer, 2009. "Output, Input and Productivity Measures at the Industry Level: The EU KLEMS Database," Economic Journal, Royal Economic Society, vol. 119(538), pages 374-403, June.
    15. Richard B. Freeman, 1995. "Are Your Wages Set in Beijing?," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 15-32, Summer.
    16. Currie, Janet & Harrison, Ann E, 1997. "Sharing the Costs: The Impact of Trade Reform on Capital and Labor in Morocco," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages 44-71, July.
    17. Robert Feenstra & Gordon Hanson, 2001. "Global Production Sharing and Rising Inequality: A Survey of Trade and Wages," NBER Working Papers 8372, National Bureau of Economic Research, Inc.
    18. Richard B. Freeman & Remco Oostendorp, 2000. "Wages Around the World: Pay Across Occupations and Countries," NBER Working Papers 8058, National Bureau of Economic Research, Inc.
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    Citations

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    Cited by:

    1. Rafal Kierzenkowski & Isabell Koske, 2012. "Less Income Inequality and More Growth – Are they Compatible? Part 8. The Drivers of Labour Income Inequality – A Literature Review," OECD Economics Department Working Papers 931, OECD Publishing.
    2. repec:wsi:jicepx:v:04:y:2013:i:01:n:s179399331350004x is not listed on IDEAS
    3. Isabell Koske & Jean-Marc Fournier & Isabelle Wanner, 2012. "Less Income Inequality and More Growth – Are They Compatible? Part 2. The Distribution of Labour Income," OECD Economics Department Working Papers 925, OECD Publishing.

    More about this item

    Keywords

    mandated wages; occupations; trade; wages;

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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