Trade integration and the skill premium: Evidence from a transition economy

Cho, Sang-Wook; Díaz, Julián P.

doi:10.1016/j.jce.2012.08.002

Cited by 10 publications

(7 citation statements)

References 27 publications

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“…Here, applied general equilibrium analysis is defined to be the numerical implementation of general equilibrium models calibrated to data (Kehoe and Kehoe, ; Kehoe and Prescott, ). Recently, Cho and Díaz () also apply applied general equilibrium analysis to trade and wage inequality in Slovenia. Note that some authors (e.g.…”

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confidence: 99%

A Survey of Trade and Wage Inequality: Anomalies, Resolutions and New Trends

Kurokawa

2012

Journal of Economic Surveys

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This paper surveys recent studies on trade and wage inequality. We first introduce some trade-based explanations for increased wage inequality. There are, however, a number of criticisms of this line of thought based on the 'trade-wage inequality anomaly', the 'price-wage anomaly', and the small volume of trade. Mainly due to these criticisms, trade-based explanations for rising wage inequality have been limited in the economic literature. Rather, the primary explanations for wage inequality have been based on skill-biased technological change. Some trade models, however, have weakened the above criticisms, and more economists now argue that the effect of trade, though relatively small compared to that of technological change, is more significant than generally believed. Finally, we attempt to link new trends in inequality, such as job polarization and within-group inequality, to the trade and wage inequality literature. Increased Trade and Increased Wage InequalityAs Figure 1 shows, the relative wage of high-skilled to low-skilled workers began to increase in US manufacturing industries in the late 1980s, and this phenomenon was also observed in Mexico. 1 As can be seen, these two countries showed surprisingly similar movements in relative wages in the late 1980s and early 1990s. 2 What is the cause of this recent increase in wage inequality in these countries?The data also indicate that, as shown in Figure 2, US-Mexican trade as a percentage of US GDP increased dramatically during the same period. 3 Hence, this increased trade might have contributed to the recent increase in skill premiums in both countries. 4 Past studies, such as Wood (1994), have investigated the possible relationship between trade and wage inequality. It is still a topic of interest and heated debate among economists.However, there are a number of criticisms of trade-based explanations for increased wage inequality. One criticism is based on the 'trade-wage inequality anomaly' -a discrepancy between the standard Heckscher-Ohlin (H-O) model and the data. According to the H-O model, the relative wage of highskilled to low-skilled workers should increase in the high-skill abundant US but decrease in low-skill abundant Mexico after trade liberalization. However, as we have seen in Figures 1 and 2, the data show that the wage inequality increased along with the increase in trade in both countries in the late 1980s and early 1990s. This is the 'trade-wage inequality anomaly'.A second criticism is based on the 'price-wage anomaly' -another discrepancy between the standard H-O model and the data. In the H-O model, an increase in the relative wage of high-skilled to low-skilled workers should be driven by an increase in the relative price of high-skill to low-skill intensive goods in the high-skill abundant US. This price-wage linkage is known as the Stolper-Samuelson theorem of the in the 1980s led to an increase in the demand for high-skilled workers, who were complements for this equipment, and a decrease in the demand for low-skilled workers, wh...

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confidence: 99%

A Survey of Trade and Wage Inequality: Anomalies, Resolutions and New Trends

Kurokawa

2012

Journal of Economic Surveys

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“…Evidence is much more limited in transition and developing economies. A study related to our research is that of Cho and Díaz (2013), who show that while the skill premium has remained relatively stable or has increased over time in a number of CEECs, a decline in the skill premium has been observed in Slovenia. This decline coincides with a significant increase in trade liberalisation.…”

Section: Value Chains and Wagesmentioning

confidence: 87%

“…Following Cho and Díaz (2013), high-skilled workers are defined as individuals with tertiary education or who have completed more than 13 years of education (International Standard Classification of Education-ISCED 5 and 6).…”

Section: Value Chains and Wagesmentioning

confidence: 99%

Value-chain activities and individual wages

Márquez‐Ramos

2018

cpoib

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Purpose The purpose of this paper is to contribute to a better understanding of whether emerging economies benefit or suffer more because of value-chain activities than advanced economies do. Specifically, it focuses on the consequences in terms of individual wages. Design/methodology/approach Panel data techniques are used to estimate an expanded Mincerian wage equation over the period 1995-2007. The analysis is performed using micro-level data for two countries that represent two different experiences of value-chain activities in Central Europe: Germany and Slovenia. Findings Increasing value-chain activities reduce wages for low-skilled workers in high-skill-intensive industries in Germany, hence driving up the skill wage premium. Conversely, evidence is found of a decreasing skill wage premium as a consequence of increasing value-chain activities in Slovenia. Finally, increasing value-chain activities reduces the wages of workers in low-skill-intensive industries in both Germany and Slovenia. Originality/value This paper analyses the effect of value-chain activities on wages. It is the first empirical assessment that brings individual wage data directly into the picture for an international comparison focussed on two Central European countries that represent “two faces” of value chains. This paper shows that the effects of increasing value-chain activities on wages differ by country, by industry and by individual skills.

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“…We follow Cho and Díaz (2013) and use the EU KLEMS Growth and Productivity Accounts database, which contains annual data on labor compensation and hours worked by production sector, skills levels and country for the 1995-2005 period, to calculate the skill premium series for Hungary. Following Krusell et al (2000), we define skilled workers as those with tertiary education, and unskilled workers as those with primary or secondary education.…”

Section: Skill Premium Trendsmentioning

confidence: 99%

Accounting for Skill Premium Patterns during the EU Accession: Productivity or Trade?

Cho¹,

Díaz

2014

SSRN Journal

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In this article, we disentangle the relationship between the skill premium, trade liberalization and productivity changes in accounting for the skill premium patterns of transition economies that joined the European Union (EU) in 2004. To conduct our analysis, we construct an applied general equilibrium model with skilled and unskilled labor, and combining Social Accounting Matrices, Household Budget Surveys and the EU KLEMS Growth and Productivity Accounts database, we calibrate it to match Hungarian data, a transition economy where the skill premium consistently increased between 1995 and 2005. We then assess the role of the multiple factors that affected the patterns of the skill premium: trade liberalization reforms, factor and sector bias of technical change and capital deepening, and find that all the factors can jointly account for approximately 87% of the actual change in skill premium between 1995 and 2005. Individually, capital deepening accounts for the largest share of the rise in the skill premium, whereas trade liberalization accounts for a small portion of that increase. While productivity changes account for only a small fraction of the skill premium increases during 1995 and 2000, they significantly offset the impact of the capital deepening on the skill premium in the period between 2000 and 2005.

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Trade integration and the skill premium: Evidence from a transition economy

Cited by 10 publications

References 27 publications

A Survey of Trade and Wage Inequality: Anomalies, Resolutions and New Trends

A Survey of Trade and Wage Inequality: Anomalies, Resolutions and New Trends

Value-chain activities and individual wages

Accounting for Skill Premium Patterns during the EU Accession: Productivity or Trade?

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