Labor demand and trade reform in Latin America

Trade liberalization is thought to result in higher own-wage elasticities of labor demand, particularly for unskilled labor, with adverse implications for both labor market volatility and wage dispersion. The paper first argues that theoretically the link between liberalization and labor-demand elasticities is less clear than has previously been asserted. It then uses dynamic panel techniques to estimate labor-demand relations for manufacturing establishments in Chile, Colombia, and Mexico across periods of trade policy reform. The results do not strongly support the hypothesis that trade liberalization has a direct impact on own-wage elasticities.