Does tariff liberalization increase wage inequality ? - Some empirical evidence

Abstract

The objective of the paper is to answer an often-asked question : if tariff rates are reduced, what will happen to wage inequality ? We consider two types of wage inequality : between occupations (skills premium) and between industries. We use two large databases of wage inequality that have become recently available and a large data set of average tariff rates all covering the period between 1980 and 2000. We find that tariff reduction is associated with higher inter-occupational and inter-industry inequality in poorer countries (those below the world median income) and the reverse in richer countries. However, the results for inter-occupational inequality though must be treated with caution.JEL classification: F1, F13, D31, J31

Education’s effect on income inequality: an economic globalisation perspective

“…Milanovic (2002) found a more complex relationship whereby openness in low-income countries tended to benefit only the rich, but openness in higher-income countries benefited the poor and middle class to a larger degree. Looking specifically at tariffs, Milanovic and Squire (2005) found that more liberal policies were associated with increased inequality in poorer countries, but with decreased inequality in richer countries.…”

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“…Zhu and Trefler (2005) showed that the technological catch-up that they measure with labor productivity (without linking it to imports) does not increase directly wage inequality but allows developing countries to be specialized in more skill-intensive products in their exports which, in turns, leads to an indirect increase in wage inequalities. 4 The recent study from Milanovic and Squire (2005) also use an inter-industry wage dispersion dataset. This approach allows using a larger sample since those data are easier to collect.…”

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Rent-seeking bureaucracies, inequality, and growth

“…Dinopoulos and Segerstrom (1999) interpret γ as a wage dispersion parameter, with higher γ associated with larger percentage differences between the wages of highest and lowest paid skilled workers (see footnote 13 in Dinopoulos and Segerstrom, 1999). Empirical evidence (see Milanovic and Squire, 2005;Fernàndez et al, 2005;Szekely and Hilgert, 2000;Bils and Klenow, 2000) shows that wage dispersion is higher in developing countries than in developed ones. In this framework, where ability is uniformly distributed, developing countries also have larger residual wage inequality, i.e.…”