How Wages and Employment Adjust to Trade Liberalization: Quasi-Experimental Evidence from Austria

43 Pages Posted: 16 Jun 2011

See all articles by Marius Brülhart

Marius Brülhart

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne)

Céline Carrère

affiliation not provided to SSRN

Federico Trionfetti

affiliation not provided to SSRN

Date Written: June 2011

Abstract

We study the response of regional employment and nominal wages to trade liberalization, exploiting the natural experiment provided by the opening of Central and Eastern European markets after the fall of the Iron Curtain in 1990. Using data for Austrian municipalities, we examine differential pre- and post-1990 wage and employment growth rates between regions bordering the formerly communist economies and interior regions. If the 'border regions' are defined narrowly, within a band of less than 50 kilometers, we can identify statistically significant liberalization effects on both employment and wages. While wages responded earlier than employment, the employment effect over the entire adjustment period is estimated to be around three times as large as the wage effect. The implied slope of the regional labor supply curve can be replicated in an economic geography model that features obstacles to labor migration due to immobile housing and to heterogeneous locational preferences.

Keywords: natural experiment, regional labor supply, spatial adjustment, trade liberalization

JEL Classification: F15, R11, R12

Suggested Citation

Brulhart, Marius and Carrère, Céline and Trionfetti, Federico, How Wages and Employment Adjust to Trade Liberalization: Quasi-Experimental Evidence from Austria (June 2011). CEPR Discussion Paper No. DP8430, Available at SSRN: https://ssrn.com/abstract=1865580

Marius Brulhart (Contact Author)

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne) ( email )

Unil Dorigny, Batiment Internef
Lausanne, 1015
Switzerland
+41 21 692 3471 (Phone)
+41 21 692 3365 (Fax)

HOME PAGE: http://www.hec.unil.ch/mbrulhar/

Céline Carrère

affiliation not provided to SSRN

No Address Available

Federico Trionfetti

affiliation not provided to SSRN ( email )

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