Trade Liberalization and the Evolution of Skill Earnings Differentials in Brazil
Centro Studi d'Agliano Development Studies Working Paper No. 216
37 Pages Posted: 20 Feb 2007
Date Written: July 2006
Abstract
Skilled labor earnings di¤erentials decreased during the trade liberalization implemented in Brazil from 1988 to 1995. This paper investigates the role of trade liberalization in explaining these relative earnings movements. We perform several independent empirical exercises that check the traditional trade transmission mechanism, using disaggregated data on tariffs, prices, wages, employment and skill intensity. We find that: i) employment shifted from skilled to unskilled intensive sectors, and each sector increased its relative share of skilled labor; ii) relative prices fell in skill intensive sectors; iii) tariff changes across sectors were not related to skill intensities, but the pass-through from tari¤s to prices was larger in skill intensive sectors; iv) the decline in skilled earnings differentials mandated by the price variation predicted by trade is very close to the observed one. The results are compatible with trade liberalization accounting for the observed relative earnings changes in Brazil.
Keywords: Skill earnings differentials, Trade liberalization, Tariffs pass-through, Stopler-Samuelson
JEL Classification: F13, J31
Suggested Citation: Suggested Citation
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