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Trade liberalization and evolution of skill earnings differentials in Brazil


  • Gustavo Gonzaga

    () (Department of Economics PUC-Rio)

  • Naércio Menezes Filho


  • Cristina Terra



From 1988 to 1995, when trade liberalization was implemented in Brazil, relative earnings of skilled workers decreased. In this paper, we in-vestigate the role of trade liberalization in explaining these relative earn-ings movements, by checking all the steps predicted by the Heckscher-Ohlin- style trade transmission mechanism. 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) tari .changes across sectors were not related to skill inten-sities, but the pass-through from tari .s to prices was stronger in skill intensive sectors; iv) the decline in skilled earnings di .erentials mandated by the price variation predicted by trade is very close to the observed one. The results are compatible with trade liberalization, accounting for the observed relative earnings changes in Brazil.

Suggested Citation

  • Gustavo Gonzaga & Naércio Menezes Filho & Cristina Terra, 2002. "Trade liberalization and evolution of skill earnings differentials in Brazil," Textos para discussão 463, Department of Economics PUC-Rio (Brazil).
  • Handle: RePEc:rio:texdis:463

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    References listed on IDEAS

    1. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555 Elsevier.
    2. 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.
    3. R. E. Baldwin & G. G. Cain, "undated". "Shifts in U.S. Relative Wages: The Role of Trade, Technology, and Factor Endowments," Institute for Research on Poverty Discussion Papers 1132-97, University of Wisconsin Institute for Research on Poverty.
    4. Eli Berman & John Bound & Zvi Griliches, 1994. "Changes in the Demand for Skilled Labor within U. S. Manufacturing: Evidence from the Annual Survey of Manufactures," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 367-397.
    5. Alan B. Krueger, 1997. "Labor Market Shifts and the Price Puzzle Revisited," NBER Working Papers 5924, National Bureau of Economic Research, Inc.
    6. 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.
    7. Stephen Machin & John Van Reenen, 1998. "Technology and Changes in Skill Structure: Evidence from Seven OECD Countries," The Quarterly Journal of Economics, Oxford University Press, vol. 113(4), pages 1215-1244.
    8. Johnson, George & Stafford, Frank, 1999. "The labor market implications of international trade," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 34, pages 2215-2288 Elsevier.
    9. repec:fth:prinin:375 is not listed on IDEAS
    10. Alan Krueger, 1997. "Labor Market Shifts and the Price Puzzle Revisited," Working Papers 754, Princeton University, Department of Economics, Industrial Relations Section..
    11. repec:bin:bpeajo:v:24:y:1993:i:1993-2m:p:161-226 is not listed on IDEAS
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    Cited by:

    1. Beatriz Muriel & Cristina Terra, 2009. "Sources of Comparative Advantages in Brazil," Review of Development Economics, Wiley Blackwell, vol. 13(1), pages 15-27, February.
    2. Marcelo de Paiva Abreu, 2003. "The political economy of economic integration in the Americas: Latin American interests," Textos para discussão 468, Department of Economics PUC-Rio (Brazil).

    More about this item


    earnings inequality; trade liberalization;

    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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