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International competition, returns to skill, and labor market adjustment

Author

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  • Falvey,Rod
  • Greenaway,David
  • Silva,Joana C. G.

Abstract

Does increased import competition lead to higher returns to skill within an industry and, therefore, to greater incentives for skill acquisition? Does it also induce skill upgrading by the industry?s existing workforce? To answer these questions, this paper follows individual workers across skills/occupations, firms, and industries using a longitudinal matched employer-employee data set covering all workers and firms in Portugal over 1986-2000. To identify the effects of international competition the analysis uses two exogenous measures of changes in international competition at the industry level. The first is a quasi-natural experiment based on the strong appreciation of the Portuguese currency during 1989-1992 and preexisting differences in trade exposure across industries in a differences-in-differences estimation. The second is source-weighted real exchange rates defined at the industry level. Based on both empirical strategies, and two definitions of skill, the paper shows that international competition increases returns to skill and induces skill/occupation upgrading within industries.

Suggested Citation

  • Falvey,Rod & Greenaway,David & Silva,Joana C. G., 2018. "International competition, returns to skill, and labor market adjustment," Policy Research Working Paper Series 8365, The World Bank.
    • Handle: RePEc:wbk:wbrwps:8365
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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. Peter W. Wright & Paulo Bastos, 2012. "Exchange Rates and Wages in Unionized Labor Markets," ILR Review, Cornell University, ILR School, vol. 65(4), pages 975-999, October.
    3. 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.
    4. 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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