International Competition, Returns to Skill and Labor Market Adjustment

31 Pages Posted: 10 Mar 2008

See all articles by Rod Falvey

Rod Falvey

Bond University - Department of Economics

David Greenaway

University of Nottingham - School of Economics

Joana Silva

University of Nottingham

Multiple version iconThere are 2 versions of this paper

Date Written: February 2008

Abstract

This paper examines whether increased import competition induces domestic workers to skill upgrade and/or switch industries. The analysis makes use of a large unique longitudinal matched employer-employee dataset that covers virtually all workers and firms in Portugal over the 1986-2000 period. Our identification strategy uses two exogenous changes in the degree of international competition. First, we exploit the strong appreciation of the Portuguese currency in 1989-1992 and pre-existing differences in trade exposure across industries in a differences-in-differences estimation. Second, we make use of changes in industry-specific (source-weighted) real exchange rates. A bivariate probit model is used to analyse the impact of increased international competition on skill-upgrading and/or industry switching. Based on both empirical strategies, and on two different skill definitions, we find strong confirmation for the hypothesis that increased international competition increases the returns to skill and induces skill upgrading.

Keywords: International trade, Skill up-grading, Labour market adjustment

JEL Classification: F11, F16, J31, J62

Suggested Citation

Falvey, Rod and Greenaway, David and Silva, Joana, International Competition, Returns to Skill and Labor Market Adjustment (February 2008). Available at SSRN: https://ssrn.com/abstract=1104624 or http://dx.doi.org/10.2139/ssrn.1104624

Rod Falvey (Contact Author)

Bond University - Department of Economics ( email )

Bond University - Department of Economics
Gold Coast, Queensland 4229
Australia

David Greenaway

University of Nottingham - School of Economics ( email )

University Park
Nottingham, NG7 2RD
United Kingdom
+44 115 951 5469 (Phone)
+44 115 951 4159 (Fax)

Joana Silva

University of Nottingham ( email )

University Park
Nottingham, NG8 1BB
United Kingdom

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