Trade liberalization and wage inequality: Evidence from Korea

This paper investigates the heterogeneous income distribution effects of trade liberalization using Korean survey data from years of 2000–2015. Following the Stolper-Samuelson theorem most of previous research studying the effects of trade liberalization on wage differences focus on workers’ characteristics (e.g., skilled or unskilled) while heterogeneity within the same worker group has not been yet substantially investigated. To fill this gap, this paper provides empirical evidence of wage inequality across firms within the same group of workers caused by trade liberalization, potentially implied in the new-new trade models with firm heterogeneity. Employing a difference-in-differences (DID) specification, we find that the wages of unskilled workers in Korea have increased since its FTAs with more advanced countries, such as members of EU and the US, came into effect, while the effects on the wages of skilled workers are negative but not statistically significant. We also show that wage effects are heterogeneous across firms within unskilled and skilled worker groups, while the positive effects are statistically significant and largest for unskilled workers in medium-large sized firms. These findings are in line with both traditional and new-new trade models.     

Appropriation,firm dynamics,and wage inequality

This paper examines the income distribution and welfare effects of appropriation activities in an economy. In the short run, with a given number of firms, appropriation can narrow wage inequality between skilled and unskilled labor when the capital resources accrued by appropriators are not large. However, wage inequality widens when the capital accrued is large. In the long run, with free entry and exit of firms, an increase in appropriation can cause firms to enter when the accrued capital is not large. This gives rise to a win–win outcome by raising the wages of skilled and unskilled labor. However, if accrued capital is large, firms exit and a lose–lose situation may occur in which skilled and unskilled wages are reduced.     

全球生产网络、贸易结构与工资差距：来自中国的证据

论文通过建立全球生产网络的中间投入品模型,实证分析中间品贸易对一国技术劳动力和非技术劳动力工资差异的影响。研究发现：加工贸易是中国融入全球生产网络的典型形态;其出口会扩大对技术和非技术劳动力的需求。但技术劳动力的工资上涨幅度要高于非技术劳动力的工资涨幅,从而使相对工资差距扩大。短期内,中间品的进口减少了技术劳动力的需求和就业,但长期来看中间品进口会扩大对技术劳动力的需求,相对工资差距拉大。人力资本投资的供给增长由于未能满足劳动力市场的需求,从而在一定程度上表现为工资差距拉大;但长期来看,人力资本积累机制的完善使得相对工资差距会逐渐缓和。     

Capital market distortion,firm entry and wage inequality

Distortions in the capital market are notable in developing economies like China. By building up a dual production structure with oligopolistic competition in urban manufacturing, this paper investigates the distributional and welfare effects of capital market distortions. We find that in the short run, an increase in the capital market distortion in favor of urban firms can lower both the skilled and unskilled wages. However, in the long run, the preferential policy on reducing capital cost to the urban sector attracts new entry of firms, which can worsen the skilled-unskilled wage inequality in the economy. This firm-entry effect of the capital market distortion on wage inequality is empirically confirmed for China.     

Unemployment with trade and firm heterogeneity

By specifying the setting of the footloose capital model with firm heterogeneity, this paper examines the effects of trade liberalization on unemployment through two different mechanisms: firstly, we embed search frictions into the labor market; and secondly, we consider fair wages as the source of unemployment. In the model with search frictions, we find that both the expected wage and employment rate could be higher for a small country with better search technology. In the fair wage setting, the results show that an increase in trade freeness increases the unemployment rate of the large (small) country when the trade freeness is sufficiently high (low). Finally, we try to compare the welfare levels under different scenarios and discover that unemployment may lead to a deterioration in the welfare gains from trade.     

Do Exporting Firms Pay Higher Wages? Evidence from Kenya's Manufacturing Sector

Abstract: When trade liberalization was first embarked on in Kenya some 20 years ago, a key argument against it was that it would reduce domestic wages, as exporting firms sought to remain competitive versus, for example, the low‐cost Asian countries. A counter argument was that manufactured exports require more elaborate design, supervision, packaging and handling, and thus a more educated labor force than production for the domestic market. To attract such skills, exporting firms would need to pay higher wages than non‐exporting ones. This paper uses data from Kenyan manufacturing to study the impact of trade liberalization on earnings, distinguishing between exporting and non‐exporting firms. In particular, it investigates whether exporting firms paid a wage‐premium to their employees. The study uses manufacturing firm survey data from a World Bank regional project. The study has three important findings: (1) There was a large and significant effect of exporting on wages in the first decade of trade liberalization. During the first half of the 1990s, workers in exporting firms earned up to 30 percent more than those engaged in non‐exporting firms. The results are robust even after controlling for individual and firm‐level characteristics such as employee demographics, productivity, firm location and occupation. (2) After a decade of trade liberalization, exporting ceased to be a significant determinant of wages in Kenyan manufacturing, after controlling for productivity and firm location. (3) During the 2000s, casual or irregular employment became a more common feature of exporting firms. The results suggest that while higher wages were important in attracting skilled labor to exporting firms at the beginning of trade liberalization in the 1990s, domestic competition has since reduced the wage premium. Cost cutting pressures are instead reflected in the substitution of casual and low wage labor for permanent and better educated labor and in increased automation.     

Who is Better Off from Trade Liberalization? An Experience from Urban China*

Empirical studies have found that the skill wage gap (difference between wages earned by skilled and unskilled workers) narrowed in the case of the ‘Four Asian Dragons’ as they underwent trade liberalization during the 1960s and 1970s, whereas the gap widened in most of the Latin American countries after they liberalized their economies in the 1980s. China's integration into the world economy since 1978 has been used to explain this phenomenon, but few formal studies have been carried out in China regarding the effects of trade liberalization on the skill wage gap because of the limited availability of data. The present study uses unique household surveys conducted in ten provinces of China in 1988 and 1995 to study this issue. Results show that trade liberalization that occurred in China between 1988 and 1995 was responsible for an average increase of 28.73 yuan (approximately 20 percent of the total increase) in average monthly wages. However, trade liberalization significantly widened the urban skill wage gap in China by introducing an increase in income only for those who had 13 years or more of education (at least junior high school graduates). Interestingly, import liberalization also only benefited those who had more than 9 years of schooling; whereas export liberalization brought wage increases for people with 7–12 years of education. Finally, those with specific production skills from technical schools, rather than those with several years of general education, were mostly favored in the labor market in China between 1988 and 1995.     

金融发展、对外贸易与全要素生产率：来自中国省域的证据

文章将金融发展、对外贸易与全要素生产率整合在一个统一的分析框架中,考察了开放经济下金融发展在促进贸易规模扩大、贸易结构优化,并进而促进全要素生产率增长中的内在机理。实证结果表明,金融发展不仅能够促进贸易规模的扩大,而且还能促使贸易结构优化。但是从具体的金融指标来看,只有中长期贷款余额的增加和以存贷比表示的金融发展效率的提升才能产生贸易规模和贸易结构效应,而贷款总量的增加并不能产生这种效应。并基于这一结论,用金融发展对贸易影响的回归拟和值来考察全要生产率增长的情况,证明了金融发展通过对外贸易对全要素生产率增长的促进作用的存在性,但这种效应只有东部地区才有,中西部地区有由于金融发展水平的滞后而不存在这种效应。另外这种效应的发挥主要也是通过技术进步渠道来实现的,其对技术效率的改善作用不明显。同时在实证检验中还发现,金融发展通过对外贸易影响全要素生产率增长要受到各个地区人力资本水平的影响,即存在“人力资本门槛”效应。     

A Picture of Wage Inequality and the Allocation of Labor Through a Period of Trade Liberalization: The Case of Brazil

This paper constructs a picture of the labor market impact of trade liberalization in Brazil. We examine the level and dispersion of wages, the skilled wage premium, and employment composition before and after trade liberalization. After trade reform, there was a rise in the returns to college education which, since the share of college workers also rose, is attributable to rising demand. This change did not increase overall wage dispersion because of the small share of college-educated workers and because of decreasing returns to intermediate levels of education.     

Economic integration, wage policies, and social policies

This paper sets up a two country monopolistic competition modelwith intra-industry trade to study the effects of an exogenousdifferential in wage and social policies on the location ofindustry. Two model scenarios are considered. In the traditionalone with physical capital, such a differential induces a relocationeffect which increases with the level of trade integration.The ‘new economic geography’ world assumes mobileentrepreneurs which can relocate thus bringing agglomerationforces into play. The most significant difference between thisworld and the traditional one is that, at high levels of tradeintegration, where one country has emerged as the core and theother as the periphery, the core may have more generous socialpolicies and higher wages than the periphery without inducinga relocation of firms. The scope to have higher wage is constrained,however, and related to the level of trade integration in abell-shaped way.     

Why the industrial revolution was British: commerce,induced invention,and the scientific revolution1

Britain had a unique wage and price structure in the eighteenth century, and that structure is a key to explaining the inventions of the industrial revolution. British wages were very high by international standards, and energy was very cheap. This configuration led British firms to invent technologies that substituted capital and energy for labour. High wages also increased the supply of technology by enabling British people to acquire education and training. Britain's wage and price structure was the result of the country's success in international trade, and that owed much to mercantilism and imperialism. When technology was first invented, it was only profitable to use it in Britain, but eventually it was improved enough that it became cost‐effective abroad. When the ‘tipping point’ occurred, foreign countries adopted the technology in its most advanced form.     

How does economic integration influence employment and wages in border regions? The case of the EU enlargement 2004 and Germany’s eastern border

This paper considers the (short-run) employment and wage effects of the 2004 EU enlargement on firms located close to Germany’s eastern border. We use a 50% sample of Germans plants and apply difference-in-differences estimators combined with a matching approach. We evaluate changes in total employment, the employment shares of low-skilled and East European workers and the wages for low-skilled, skilled and high-skilled workers in various sectors. Our results suggest basically no short-run employment effects of the EU enlargement except for firms active in wholesale and retail trade, hotels and restaurants. We also find some evidence for a stronger employment of East European workers in almost all border firms, although the effects are quantitatively small. Negative wage effects are only found for skilled workers in consulting, research and related activities.     

Hukou system reforms and skilled-unskilled wage inequality in China

In China, rural migrant workers usually cannot get fair treatment due to the hukou system. This paper investigates how hukou system reforms affect the skilled-unskilled wage inequality through the general equilibrium approach. In the basic model, we find that an increase in the strength of hukou system reforms will narrow down the wage inequality if the urban skilled sector is more capital intensive than the urban unskilled sector. In addition, we separately extend the basic model by introducing the endogenous minimum wage and an informal sector, and find that in these two extended cases the main results of the basic model will conditionally or unconditionally hold. When we consider some empirical evidences in China, our models predict that an increase in the strength of hukou system reforms will reduce the wage inequality.     

Wage differentials between local and foreign workers in Macao: Discrimination?

This paper looks into the wage differential between local and foreign workers in Macao. We applied standard wage decomposition techniques to official wage statistics to identify wage gaps according to sector and occupation, among other dimensions. The results suggest that, in addition to wage discrimination against foreign workers as a whole, Macao’s employers tend to pay skilled foreign workers premium wages, whereas less-skilled foreign workers receive lower wages than their local counterparts.     

Export Activity,Firm Size and Wage Structure: Evidence from Taiwanese Manufacturing Firms*

This study adopts a semiparametric smooth coefficient model to evaluate the export–wage premiums, firm size–wage premiums, and the wage gap between skilled and unskilled labor. Particular focus is placed upon widespread evidence indicating that pay levels in ‘large’ and ‘export‐oriented’ firms are higher than in their ‘small’ and ‘domestic‐oriented’ counterparts. Applying the firm‐level data for Taiwanese manufacturing firms, we find a positive export–wage premium for skilled workers and a negative export–wage premium for unskilled workers. The hypothesis of a constant export premium across firm size is rejected. While most of the export–wage premiums for skilled labor can be attributed to the small and medium firms, the large exporting firms have a significant adverse effect on wages for unskilled labor. Moreover, our results suggest that the firm size–wage premiums for skilled workers are larger than those for unskilled workers. The wage gap between the two skill groups is also sensitive to size categories.     

Wage increases, wage convergence, and the Lewis turning point in China

We examine the wage trends of ordinary workers and the wage convergence between unskilled and skilled workers in China. First, we find that wages in all non-agricultural sectors, wages of migrant workers, and wages of hired workers in the agricultural sector have increased dramatically since 2003. Second, through comparing wage differentials between migrant and urban resident workers and between heterogeneous education groups within migrant workers, and by investigating the changes in the contribution of the returns to education to wage differentials, we find that the wages of unskilled and skilled workers have converged. Both the increasing wage trends and wage convergence are interpreted as evidence supporting the hypothesis that China has passed what can be called the Lewis turning point in the industrial sector. We conclude that the sustainability of economic growth in China requires an upgrading of labor market institutions to accommodate the merging of the rural and urban labor forces.     

A Tale of Two Peripheries: Real Wages in Denmark and New Zealand 1875–1939.

Abstract

Denmark achieved dramatic real wage growth after 1870, compared to other European economies and to those of the New World. The ingredients of Denmark's success are gauged by comparison with one its major competitors in the British food-products markets, New Zealand. Faster Danish productivity growth explains only part of Denmark's faster real wage growth. Open economy forces, chiefly international capital flows before 1913, and especially Danish trade union militancy around the end of World War I, influenced income distribution and especially favoured wages over property income in Denmark. Denmark's GDP per capita equalled New Zealand levels between the world wars but her real wages surged past those of New Zealand as distributional shifts favoured Denmark's wage earners.     

Role of Individual Social Capital in Wage Determination: Evidence from China

The present study examines the role of individual‐level social capital in workers’ wage determination in a Nash‐bargaining wage model using Chinese micro‐level data. The study finds a significant contribution of individual‐specific social capital to the wage level. In particular, larger individual social networks and workers’ positive attitudes toward social capital significantly increase the wage level. Moreover, the effect of social capital on the wage level is much larger for men than for women. The results indicate that construction of individual social capital could increase workers’ wages. However, efforts are needed to reduce the unequal contributions of social capital between men and women.     

贸易开放与工资差距——基于中国制造业行业面板数据的实证研究

本文在中国贸易非均衡发展现状基础上,构建计量模型,从商品价格机制、技术进步机制和生产率进步机制角度探讨中国贸易开放影响中国制造业行业间工资差距的具体传导机制。研究发现:(1)就制造业总体而言,贸易主要通过技术进步机制和劳动生产率机制来影响行业工资,造成行业间工资差距的扩大。(2)具体而言,劳动力密集型行业中,进出口贸易、资本密集度和劳动生产率共同作用于行业工资差距;在资本密集型行业中,进口贸易、资本密集度和劳动生产率是扩大工资差距的动因;在技术密集型行业中,出口贸易是工资差距扩大的主导因素。     

The role of information sharing in trade credit distribution: evidence from Thailand

Prior research has shown that information sharing among lenders facilitates bank credit allocation and reduces default rates. We examine the role of information sharing in trade credit allocation using a sample of publicly traded firms in Thailand over the 1994–2005 period. Taking the establishment of a private credit bureau in 1999 as signalling improvement in information sharing among lenders, we obtain three main results in the improved information sharing period: (1) Thai firms have become less dependent on supplier credit; (2) financially constrained firms redistribute more funds via trade credit; and (3) the relationships between the use of trade credit and firm‐specific factors such as liquidity, free cash flow, tangible assets, interest cost ratio, and firm size weaken as information sharing improves. Our results are consistent with the view that better information sharing facilitates credit allocation. Hence, policies aiming at facilitating information exchange among financial intermediaries should be supported. We also find support for the view that bank credit substitutes for trade credit. This substitution lowers firms' cost of capital, given that trade credit is assumed to be more costly than bank loans.