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Trade liberalization and the inter-industry wage premia: the missing role of productivity

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  • Paz, Lourenco

Abstract

The literature concerning the effect of tariffs on the inter-industry wage premium has not addressed the role of total factor productivity (TFP) in determining both the wage premium and tariffs. This omission invalidates the use of the pre-reform tariff level as an instrument for the change in tariffs. Based on an analysis of Colombian data, I find that including TFP in the estimated model of the effects of tariffs on the wage premium leads to a 36% decrease in the effect of tariffs on the inter-industry wage premium relative to the model that omits TFP. More specifically, a ten percentage point decrease in tariffs reduces the wage premium by 1.1%. This finding suggests the importance of using policies that boost productivity to offset the effect of tariffs on the wage premium.

Suggested Citation

  • Paz, Lourenco, 2012. "Trade liberalization and the inter-industry wage premia: the missing role of productivity," MPRA Paper 39024, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:39024
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    References listed on IDEAS

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    Cited by:

    1. Evangelia Papapetrou & Pinelopi Tsalaporta, 2016. "Inter-industry wage differentials in Greece: rent-sharing and unobserved heterogeneity hypotheses," Working Papers 213, Bank of Greece.

    More about this item

    Keywords

    inter-industry wage premium; trade liberalization; productivity; Colombia;

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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