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Trade liberalization, firm heterogeneity, and wages : new evidence from matched employer-employee data

Author

Listed:
  • Krishna, Pravin
  • Poole, Jennifer P.
  • Senses, Mine Zeynep
Abstract
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.

Suggested Citation

  • Krishna, Pravin & Poole, Jennifer P. & Senses, Mine Zeynep, 2011. "Trade liberalization, firm heterogeneity, and wages : new evidence from matched employer-employee data," Policy Research Working Paper Series 5711, The World Bank.
    • Handle: RePEc:wbk:wbrwps:5711
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    References listed on IDEAS

    as
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    Cited by:

    1. Mario Macis & Fabiano Schivardi, 2016. "Exports and Wages: Rent Sharing, Workforce Composition, or Returns to Skills?," Journal of Labor Economics, University of Chicago Press, vol. 34(4), pages 945-978.
    2. Elhanan Helpman & Oleg Itskhoki & Marc-Andreas Muendler & Stephen J. Redding, 2017. "Trade and Inequality: From Theory to Estimation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 84(1), pages 357-405.
    3. Davidson, Carl & Heyman, Fredrik & Matusz, Steven & Sjöholm, Fredrik & Zhu, Susan Chun, 2014. "Globalization and imperfect labor market sorting," Journal of International Economics, Elsevier, vol. 94(2), pages 177-194.
    4. Miklós Koren & Márton Csillag, 2017. "Machines and Machinists: Importing Skill-Biased Technology," CEU Working Papers 2017_1, Department of Economics, Central European University.
    5. Claudio Labanca & Danielken Molina & Marc-Andreas Muendler, 2013. "Preparing to Export," NBER Working Papers 18962, National Bureau of Economic Research, Inc.
    6. Mehta, Aashish & Sun, Wei, 2013. "Does Industry Affiliation Influence Wages? Evidence from Indonesia and the Asian Financial Crisis," World Development, Elsevier, vol. 51(C), pages 47-61.
    7. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2012. "The Empirics of Firm Heterogeneity and International Trade," Annual Review of Economics, Annual Reviews, vol. 4(1), pages 283-313, July.
    8. Aashish Mehta & Jesus Felipe & Pilipinas Quising & Shiela Camingue, 2013. "Where have All the Educated Workers Gone? Services and Wage Inequality in Three Asian Economies," Metroeconomica, Wiley Blackwell, vol. 64(3), pages 466-497, July.

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    Keywords

    Labor Markets; Microfinance; Free Trade; Trade Policy; Economic Theory&Research;
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