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Trade Liberalization and Wage Inequality in the Philippines

  • Rana Hasan


    (Asian Development Bank)

  • Karl Robert L. Jandoc


    (School of Economics, University of the Philippines Diliman)

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    We examine the role of trade liberalization in accounting for increasing wage inequality in the Philippines from 1994 to 2000--a period over which trade protection declined and inequality increased dramatically. Using the approach of Ferreira, Leite, and Wai-Poi (2007), we find that trade-induced effects on industry wage premia and industry-specific skill premia account for an economically insignificant increase in wage inequality. A more substantial role for trade liberalization comes through trade-induced employment reallocation effects whereby reductions in protection appear to have led to a shift of employment to more protected sectors, especially services where wage inequality tended to be high to begin with. Nevertheless, the key drivers of wage inequality appear to be changes in economy-wide returns to education and changes in industry membership over and above those accounted for by our estimates of trade-induced employment reallocation effects. In order for trade liberalization to account for a relatively large portion of the increases in wage inequality, it would have to be a major determinant of the changes in economy-wide returns to education.

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    Paper provided by University of the Philippines School of Economics in its series UP School of Economics Discussion Papers with number 201006.

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    Length: 41 pages
    Date of creation: May 2010
    Date of revision:
    Publication status: Published as UPSE Discussion Paper No. 2010-06, May 2010
    Handle: RePEc:phs:dpaper:201006
    Contact details of provider: Postal: Diliman, Quezon City 1101
    Phone: 927-9686
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