Trade liberalization and the inter-industry wage premia: the missing role of productivity

Paz, Lourenco (2012): Trade liberalization and the inter-industry wage premia: the missing role of productivity.

Abstract

The literature concerning the effect of tariffs on the inter-industry wage premium has not addressed the role of total factor productivity (TFP) in determining both the wage premium and tariffs. This omission invalidates the use of the pre-reform tariff level as an instrument for the change in tariffs. Based on an analysis of Colombian data, I find that including TFP in the estimated model of the effects of tariffs on the wage premium leads to a 36% decrease in the effect of tariffs on the inter-industry wage premium relative to the model that omits TFP. More specifically, a ten percentage point decrease in tariffs reduces the wage premium by 1.1%. This finding suggests the importance of using policies that boost productivity to offset the effect of tariffs on the wage premium.

• Item Type: MPRA Paper
• Language: English
• Keywords: inter-industry wage premium; trade liberalization; productivity; Colombia
• Subjects: F - International Economics > F1 - Trade > F16 - Trade and Labor Market Interactions; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O15 - Human Resources ; Human Development ; Income Distribution ; Migration

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