2006

The objective of this paper is to measure the impact of trade on the sectoral labor markets. Using the Colombian National Household Survey and comparable trade-related data, we study how changes in trade policy affect the sectoral demands for labor, as measured by the change in wages and employment. We develop a structural model and estimate its reduced form specification to determine an elasticity between measures of sectoral tariffs and labor demand, correcting for tariff endogeneity. The data used covers the period of 1984 through 1999. This allows us to take advantage of the natural experiment represented by the Colombian trade liberalization process of the early nineties. The results suggest that sector tariff levels over the period are positively correlated with their employment levels, but only for tradable sectors. In the case of wages, there is no evidence that they were affected by the trade reform.

We study Chile's labor market responses to trade shocks between 1996 and 2006, exploiting spatial variation in trade exposure arising from initial differences in industry specialization across local labor markets. We take advantage of China's supply and demand worldwide shocks to instrument for Chinese import competition and demand for Chilean exports. Our main finding is that increasing manufacturing import competition implied a significant rise in labor informality in more exposed local markets, especially among young and unskilled workers. These groups also suffered significant relative wage losses. Meanwhile, locations that benefited most from the increased demand for primary products experienced a relative increase in employment, particularly among young individuals, and reallocation from self-employment towards salaried jobs in the formal sector, along with relative wage gains among old-age workers. Interestingly, these areas experienced a lower increase in tertiary education enrollment rates than less exposed areas.

Journal of Economics and Management Sciences, 2021

Since the 1990s, developing countries shifted their trade policy from inward-oriented strategy to outward-oriented strategy because of the conditions imposed by international lending institutions for granting loans to developing countries. This span of trade liberalization in the developing countries is also marked with rising wage dispersion and dismal employment growth in these economies. So, the current study aims to investigate the impact of trade liberalization on employment and wages within the 30 developing countries over the period 2000 to 2019. To investigate empirical connections between trade, employment and wages, reduced form equations of labor demand and wages have been devised. The study has applied Generalized Method of Moments estimation techniques to estimate labor demand and wage equations to tackle the problem of endogeneity. The empirical findings of the study predict that trade liberalization has significant adverse effect on both labor demand and wages. However, the magnitude of the influence of trade on both one is small. Similarly, wages, employment level, output and real exchange rate are affecting employment and wages significantly. While ILO ratifications are significant only when KOF trade globalization is used as measure of liberalization, and time trend is significant only when weighted tariff rate is used as a measure of liberalization. To craft a multilateral and effective policy development, both real output and workers' skill should be the focus of economic managers of the developing economies to reap the benefits of trade liberalization.

2003

Colombia's unemployment rate rose to 20% during the late 1990s from less than 8% in 1994. This paper argues that this has been the result of high non-wage labor costs embodied in the legislation. The estimated own-wage labor demand elasticity is around-0.5, which implies that a reduction in those costs, while politically costly, can have a significant payoff in terms of equity and efficiency. We also find that adjustment costs of changing employment as well as wage elasticities were not affected by changes in the regulations regarding severance payments and dismissal costs. In this sense, structural reforms did have an impact on labor demand through its effect on relative prices alone. Finally, we conclude that the wage elasticity of labor demand increases (in absolute terms) during contractions. Hence, the increase in prices and the beginning of a recession had a significant effect on employment.

Economic Development and Cultural Change, 2007

This paper presents estimates of the impact of changes in liberalization policies on wage differentials by schooling level using a new high-quality data set for 18 Latin American countries for 1977-1998. The method controls for all fixed and timevarying country characteristics, some of which may affect the policies themselves.

2016

Using the Colombian Annual Manufacturing Survey (EAM) between 2000 and 2013, this paper investigates the existence of heterogeneity in the labor demand within the industrial sector. Long run own-price, output and TFP elasticities vary across a variety of dimensions such as regions, sectors and plant sizes depending on workers' skills and contract modalities (open-ended or temporary). Hence, it matters where one works. Such disparities should be taken into account in the design of policies that promote labor market performance, as outcomes, beyond intentions, are unlikely to be homogenous.

This paper develops and applies a new approach to the estimation of the impact of economy-wide reforms on wage differentials, using a new high-quality data set on wage differentials by schooling level for 18 Latin American countries for the period 1980-1998. The results indicate that reform overall has had a shortrun disequalizing effect of expanding wage differentials, although this effect tends to fade over time. This disequalizing effect is due to the strong impact of domestic financial market reform, capital account liberalization and tax reform. On the other hand, privatization contributed to narrowing wage differentials, and trade openness had no effect on wage differentials. Technological progress, rather than trade flows, appears to be a channel through which reforms are affecting inequality. The paper also explores the effects of reforms on wage levels; tentative results suggest that reforms have had a positive effect on real average wages, but a negative effect on the wages of less-schooled workers.

In the framework of structural reforms in Colombia, one of the most importan policy proposal was reducing rigidities in the labor market. A perspective to asses the results of such reforms is the analysis of the relationship between firm employment and wage differentials in manufacturing before and after the reforms. If the labor reforms reached the intended objective of making more flexible the labor market, the employment levels must change faster, along with the behavior of wages and other labor costs, given some characteristics of firms and the economy. This paper adresses this topic by proposing a model of wage differential and employment growth and by testing its propositions before and after the structural reforms and controlling by industry and firm characteristics. A first finding is the confirmation of the positive relationship proposed between intra-industry wage differentials and employment. In the inter-industry wage differential estimation, we find heterogeneous responses, depending on the industry and a reduction in the autonomous labor turnover.

1997

A prominent argument regarding the effects of trade liberalization is presented clearly by Krueger (1990), who argues that trade liberalization in less developed countries (LDCs) will generally compress the wage gap between more and less skilled labor. This reasoning builds from the Hecksher-Ohlin and Stolper-Samuelson theorems. In these models free trade substitutes for factor mobility, and trade liberalization leads to growth in sectors where countries have comparative advantages, causing factor prices to converge internationally. We will refer to this as the "extended Hecksher-Ohlin-Samuelson" hypothesis, or "HOS-X". It argues that for LDCs comparative advantage generally lies in their stocks of unskilled labor, while protectionism distorts prices in favor of capital. Because capital and skill are complements, protectionism raises the demand for skilled versus unskilled labor. Therefore, moving from protectionism to trade liberalism should shift the composition of output and employment towards sectors intensive in unskilled labor, raise the relative demand for unskilled labor versus skilled labor, and increase the wages of unskilled workers relative to the wages of skilled workers. An opposing argument is made by the "New" trade theorists (e.g. Grossman and Helpman, 1991; Stokey, 1994). In their view, trade liberalization leads to larger markets, which in turn induces greater Research and Development (R&D), increases the stock of technological knowledge, and reallocates employment toward innovative activities requiring more education. Through these interrelated channels, they advance the opposite hypothesis that trade liberalization raises the return to human capital, driving up the wage gap between skilled and unskilled workers. We will refer to this hypothesis as Skill Enhancing Theory or "SET". Recent work by Robbins (1995a) analyzing changes in the dispersion of wages in Chile after its major trade liberalization reforms provides evidence in favor of the "New" trade theorist arguments and against the HOS-X hypothesis. Robbins showed that trade liberalization in Chile led to an increase in the wages of more skilled relative to less skilled workers (hereafter called "relative wages"). He further argued that relative wages rose because trade liberalization in Chile led to an increase in both between-and within-industry demand for more skilled workers. This paper examines how wage and employment structure in Argentina changed over the 1974-1994 period. As a by product of this analysis, this study also provides important information on schooling. Because studying trade's impact on wage dispersion requires controlling for the relative supply of skills, this paper documents the changing distribution of educational supply through time, and analyzes its impact upon wage dispersion. The rest of this paper is organized as follows. Section I summarizes the Argentine experience with trade liberalization during the mid 70s and late 80s. Section II presents the data. Section III presents the methodology and findings for a desagregated non-parametric methodology measuring relative wage and relative supply shifts. Section III also estimates a time-series of relative demand shifts, finding that relative demand became more skill intensive after 1976 and after 1986. Finally, in Section III we consider, and reject, alternative non-demand based explanations for this rise in relative wages with trade liberalization. Section IV examines the pattern and causes of relative demand shifts in two parts. First, we decompose employment shifts into "between-industry" and "within-industry" components, finding that-counter to standard trade theory-between-shifts favored more skilled workers after 1976.

Policy Research Working Papers, 2001