Trade Liberalization and Wage Premium in Argentina: The Role of Trade Factor Intensity (original) (raw)

Trade liberalisation and wage premium in Argentina Further evidence from the 1990s

2000

Latin American countries have been implementing policies directed to the removal of barriers on international trade. Among the reasons for following this strategy were the expectations it would help to reduce income inequality. The empirical evidence available is far from being conclusive. In the case of Argentina, the country started at the end of 1988 a unilateral reduction of imports

The impact of trade liberalization on wage inequality: evidence from Argentina

Journal of Development Economics

Wage inequality in Argentina greatly increased during the nineties. During this period, a rapid and deep process of trade liberalization was implemented. In this paper we study whether trade liberalization played any role in shaping the Argentine wage structure during the nineties. Specifically, we test whether those sectors where import penetration deepened are also the sectors where, ceteris paribus, a higher increase in wage inequality is observed. Even though we find some evidence that supports this hypothesis, as has been found for some developed economies, trade deepening can only explain a relatively small proportion of the observed rise in wage inequality.

Trade Reforms and Industry Wage Premium: Evidence from Argentina

Research Papers in Economics, 2017

This paper studies the impact of Argentina trade liberalization during the nineties on the industry wage premium structure. We find that accounting for unobserved timeinvariant industry characteristics is crucial. When we do not control for industry fixed effects, we find that workers in protected sectors receive lower wages. However, introducing industry fixed effects reverses the results; tariff protection creates sector specific rents that are in part translated to workers in terms of greater wages. Since Argentina’s tariff structure during this period protected relatively more sectors employing higher proportions of skilled workers, nineties trade policy may have had an adverse effect on Argentina’s income distribution

Capital Accumulation, Trade Liberalization, and Rising Wage Inequality: The Case of Argentina

Economic Development and Cultural Change, 2007

Capital accumulation can modify the relative productivity between skilled and unskilled workers, leading to changes in the wage structure. In particular, if capital goods are relatively more complementary to skilled workers, a positive correlation between investment in physical capital and the wage premium would be expected. In this paper, we present evidence for this hypothesis by taking advantage of the variability in wage premia and capital investment across industries in the Argentina's manufacturing sector. We conclude that the wage premium for skilled workers increased more in those industries with higher investment in machinery and equipment. The overall evidence seems to indicate that industry affiliation is an important determinant of earnings differentials by skill group.

A Case Study on Trade Liberalization: Argentina in the 1990s

SSRN Electronic Journal, 2000

The link between trade and wages is embodied in the Stolper-Samuelson theorem and its generalizations. The Stolper-Samuelson logic is that trade affects relative factor rewards by changing relative prices. Since in Argentina non-skilled labor was neither as abundant a factor as land nor as scarce as capital it could not be expected to be the big winner in the opening-up process of the Argentine economy nor could it be expected to be a big loser. So, the huge amount of unemployment experienced by the Argentine economy in the 1990s as well as the widening wage gap between skilled and unskilled labor came as a complete surprise. This paper gives some reasons for this unexpected result. In Argentina, trade liberalization meant mainly import liberalization by lowering tariffs that protected labor-intensive industries like textiles. So, the short-run effect was massive destruction of jobs in non-skilled labor-intensive activities. The opening up of the economy significantly lowered the price of capital goods. This encouraged a drastic process of capital for labor substitution as well as promoting an increase in the demand for skilled labor. In those industries in which the import penetration increased the most, the wage inequality widened relatively more between unskilled and skilled workers. The reasons for the persistence of unemployment are discussed, the impact of the increasing unemployment and growing inequality in wage distribution on income distribution is analyzed, the alternatives of shock therapy vs. gradualism are discussed and finally some general conclusions are drawn from the analysis of the Argentine case.

Wage dispersion and trade in Argentina, 1974-1994

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.

Trade Reform and Inequality: The Case of Mexico and Argentina in the 1990s

The World Economy, 2008

This paper provides empirical assessments of one of the leading explanations for the increase in skill premium in Mexico and Argentina during the 1990s: trade liberalisation. We provide evidence that imports increase skill premium in Mexico, while exports reduce it. In Argentina, overall trade increased skill premium in the early 1990s (the beginning of trade reforms), although it reduced it later in the decade. These results are helpful for a comparison between South-South integration, FTAA or bilateral FTAs with Northern economies as alternative trade policy options for Latin American countries.

Trade liberalization and adjustment in Argentina

The Journal of International Trade & Economic Development, 2003

This paper looks at trade liberalization attempts in Argentina since 1970 with particular attention to the 1991-98 period, estimates the size of the adjustments required by the changes in the trade regimes, and looks at the degree of adjustment attained as manifested by the real effective exchange rate.

Trends in Tariff Reforms and Trends in the Structure of Wages

Sebastian Galiani, Guido G Porto; Trends in Tariff Reforms and in the Structure of Wages. The Review of Economics and Statistics 2010; 92 (3): 482–494. doi: https://doi.org/10.1162/REST\_a\_00003, 2010

This paper provides new evidence on the impacts of trade reforms on wages. Instead of achieving identification by comparing industrial wages before and after one episode of trade liberalization, our strategy exploits the recent historical record of policy changes adopted by Argentina: from significant protection in the early 1970s, to the first episode of liberalization during the late 1970s, back to a slowdown of reforms during the 1980s, to the second episode of liberalization in the 1990s. These swings in trade policy comprise broken trends in trade reforms that we can compare with observed trends in wages and wage inequality. We use unusual historical data sets of trends in tariffs, wages, and wage inequality to examine the structure of wages in Argentina and to explore how it is affected by tariff reforms. We find that i) trade liberalization, ceteris paribus, reduces wages; ii) industry tariffs reduce the industry skill premium; iii) conditional on the structure of tariffs at the industry level, the average tariff in the economy is positively associated with the average skill premium. To explain these results, we present a model that combines a non-competitive wage setting mechanism due to unions with a factor abundance hypothesis. Overall, our work suggests that the observed trends in wage inequality in Latin America can be consistent with the Stolper-Samuelson predictions in a model with unions.