Trade Liberalization, Firm Heterogneity, and Wages : New Evidence from Matched Employer-Employee Data

In this paper, the authors use a linked employer-employee database from Brazil to examine the impact of trade reform on the wages of workers employed at heterogeneous firms. The analysis of the data at the firm-level confirms earlier findings of a differential positive effect of trade liberalization on the average wages at exporting firms relative to non-exporting firms. However, this analysis of average firm-level wages is incomplete along several dimensions. First, it cannot fully account for the impact of a change in trade barriers on workforce composition especially in terms of unobservable (time-invariant) characteristics of workers (innate ability) and any additional productivity that obtains in the context of employment in the specific firm (match specific ability). Furthermore, the firm-level analysis is undertaken under the assumption that the assignment of workers to firms is random. This ignores the sorting of worker into firms and leads to a bias in estimates of the differential impact of trade on workers at exporting firms relative to non-exporting firms. Using detailed information on worker and firm characteristics to control for compositional effects and using firm-worker match specific effects to account for the endogenous mobility of workers, the authors find the differential effect of trade openness on wages in exporting firms relative to domestic firms to be insignificant. Consistent with the models of Helpman, Itskhoki, and Redding (2010) and Davidson, Matusz and Schevchenko (2008), they also find that the workforce composition improves systematically in exporting firms in terms of innate (time invariant) worker ability and in terms the quality of the worker-firm matches.

Bibliographic Details

Main Authors:	Krishna, Pravin, Poole, Jennifer P., Senses, Mine Zeynep
Language:	English
Published:	2011-06-01
Subjects:	AGE CATEGORIES, AGE COMPOSITION, AVERAGE WAGE, AVERAGE WAGES, CAPITAL INFLOWS, CENTRAL BANK, CHANGES IN TRADE, COLLEGE-EDUCATED WORKERS, COMPARATIVE ADVANTAGE, COMPETITIVENESS, CURRENCY, CUSTOMS, CUSTOMS UNION, DEVELOPED COUNTRIES, DEVELOPMENT POLICY, DOMESTIC MARKET, ECONOMICS LITERATURE, EMPLOYEE, EMPLOYMENT, EMPLOYMENT COMPOSITION, EMPLOYMENT HISTORY, ERP, EXCHANGE RATES, EXPANSION, EXPORT PROMOTION, EXPORT PROMOTION POLICIES, EXPORT VALUE, EXPORTERS, EXPORTS, FINAL GOODS, FIRM LEVEL, FIRM PERFORMANCE, FIRM-LEVEL ANALYSES, FIRM-LEVEL ANALYSIS, FOREIGN COMPETITION, FOREIGN INVESTMENT, FREE TRADE, FREE TRADE AREA, GENERAL EQUILIBRIUM, GENERAL EQUILIBRIUM MODEL, GLOBALIZATION, HIGH WAGES, IMPACT OF TRADE, IMPACT OF TRADE LIBERALIZATION, IMPORT COMPETITION, IMPORT CONTROLS, IMPORT PROTECTION, IMPORT REGIMES, IMPORT SUBSTITUTION, IMPORT SUBSTITUTION ERA, IMPORT SUBSTITUTION INDUSTRIALIZATION, IMPORTS, INFORMAL SECTOR, INFORMAL TRAINING, INFORMAL WORKERS, INTERMEDIATE INPUTS, INTERNATIONAL ECONOMICS, INTERNATIONAL MARKETS, INTERNATIONAL PRICES, INTERNATIONAL STANDARD, INTERNATIONAL TRADE, JOB EXPERIENCE, JOBS, LABOR FORCE, LABOR MARKET, LABOR MARKET FUNCTIONS, LABOR MARKETS, MACROECONOMIC STABILIZATION, MANUFACTURERS, MANUFACTURING INDUSTRIES, MANUFACTURING LABOR FORCE, MARKET SHARE, MEASURE OF TRADE, MINIMUM WAGE, NON-TARIFF BARRIERS, OCCUPATION, OCCUPATIONS, OUTSOURCING, PAYING JOB, POLITICAL ECONOMY, PREVIOUS JOB, PRIMARY SCHOOL, PRIMARY SCHOOL EDUCATION, PRODUCTION PROCESS, PRODUCTIVE FIRMS, PROTECTION MEASURES, PROTECTION RATES, PROTECTIONIST, QUANTITATIVE RESTRICTIONS, RATES OF PROTECTION, REAL EXCHANGE RATE, REAL EXCHANGE RATES, REAL WAGE, REAL WAGES, SKILL UPGRADING, SKILLED OCCUPATIONS, SKILLED WORKERS, SMALL FIRMS, TARIFF BARRIERS, TARIFF RATES, TOTAL FACTOR PRODUCTIVITY, TRADE BARRIERS, TRADE LIBERALIZATION, TRADE OPENNESS, TRADE ORIENTATION, TRADE POLICY, TRADE POLICY REFORM, TRADE POLICY REFORMS, TRADE PRICES, TRADE PROTECTION, TRADE REFORM, TRADE REFORMS, VALUE ADDED, VALUE OF EXPORTS, WAGE DETERMINATION, WAGE EFFECT, WAGE GAP, WAGE IMPACT, WAGE INEQUALITY, WORKER, WORKERS, WORKFORCE SKILL,
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110629090656 https://hdl.handle.net/10986/3476
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