1 / 20

CHAPTER 2:TRADE AND WAGES

CHAPTER 2:TRADE AND WAGES. 2A: Standard trade theory 2B: Empirical evidence 2C: Outsourcing and wages 2D: More recent advances Globalisation and labour markets, H. Boulhol. 1. 2B: Empirical evidence. The trade versus technology explanation Soft consensus Endogenous technological change

maree
Download Presentation

CHAPTER 2:TRADE AND WAGES

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. CHAPTER 2:TRADE AND WAGES 2A: Standard trade theory 2B: Empirical evidence 2C: Outsourcing and wages 2D: More recent advances Globalisation and labour markets, H. Boulhol 1

  2. 2B: Empirical evidence • The trade versus technology explanation • Soft consensus • Endogenous technological change • Trade in intermediate inputs • Inequality increases in developing countries

  3. 2B: Theoretical debate in the 1990s: Trade versus Technology • Increase in wage inequality has been associated with a secular increase in the share of high-skilled workers (opposite effects of labour supply shift) • The main explanation must come from shifts in labour demand that are detrimental to low-skilled workers • In the same period, trade flows have increased markedly: trade with developing countries generates an increase in the demand for high-skilled workers relative to low-skilled workers (i.e. a decrease in demand for low-skilled workers relative to high-skilled workers)… • … but the use of computers and decrease in telecommunication and (some) transport costs offer a competing explanation based on technological developments: skill-biased technological change (SBTC)

  4. 2B: Qualitative evidence • Correlation between the volume of imports and relative demand for less skilled workers • Early evidence that trade affects wages in import-competing sectors: - through its effects on rents (chap. 1), trade affects wages - the more so, the higher the workers’ bargaining power (Abowd and Lemieux, 1993) • negative impact on low-skilled workers depends on market structure and is greater in concentrated sectors (Borjas and Ramey, 1995) • Trade with developing countries contributes to the increase in wage inequalities in « flexible » developed countries

  5. 2B: Quantitative assessment • However, the effect is quantitavely small: imports from developing countries still represented a small share of GDP • Weak evidence based on changes in relative good prices • The traditional HO model cannot accommodate, given the size of North-South trade, the magnitude of the relative factor-price changes that has been observed in countries such as the USA or the UK • Greater increase in inequality within than between sectors • A soft consensus emerged that, based on standard trade theory, trade could explain at most 20% of the increase in wage inequality in developed countries Paper 2: Blum (2007)

  6. 2B: Polarisation of the labour market • Nature of inequality has changed over the last 30 years: • end of 1970s – early 1990s: increasing ineq. in the USA was spread over the whole wage distribution • since 1990s: ineq. has continued to increase, but only in the top of the distribution; slight decrease of ineq. in the bottom Between 1980 and 2005, 80% of the increase in D9/D1 is due to D9/D5 • Increase in ineq. in the top of distribution in non Anglo-saxon countries (e.g. Germany) • The rise in the top (>D9) is mostly due to very top (>D99)

  7. 2B: Causes of polarisation • Institutions vs complex technical changes (Lemieux, 2007, vs Autor, Katz & Kearney, 2007) • Importance of the debate: institutions are the results of policies, while technical changes are “natural” trends that are difficult to offset • Institutions: • Decrease in the minimum wage in the bottom • Pay mechanisms on the top: performance pay, deunionisation, financial market development

  8. 2B: Causes of polarisation (continued) • Polarisation of wages is associated with polarisation of jobs (demand effect) • Technical changes that are more complex than SBTC • Computers complement non-routine (abstract) cognitive tasks, substitute routine tasks, and have little impact on non-routine manual tasks • routine: bookkeeping, clerical work, repetitive production tasks • non-routine cognitive: problem-solving, management, coordination • non-routine manual: truck drivers, waiters, security guards, janitor

  9. 2B: Causes of polarisation (continued) • Globalisation and polarisation: • offshore outsourced jobs are typically not the non-routine manual tasks that are rather protected from foreign competition (Paper 3: Grossman & Rossi-Hansberg) • globalisation put pressures on labour market institutions (minimum wage, unions, see chapter 4) • globalisation and superstars • international financial integration might contribute to the increase in the inequality in the top

  10. 2B: Developing countries • In the last two decades, the percentage of the world’s population living on less than $1 a day has been halved, falling from 40 to 20% • In a number of countries, trade and FDI have contributed towards reducing poverty (even though financial crisis are very costly to the poor) e.g. Mexico, India, Zambia, Columbia, Poland • Clark, Dollar and Kraay (2001): • ineq. between population-weighted average incomes of the globalising countries has decreased substantially between 1975-95 • within-country ineq. has generally increased • poverty has been reduced

  11. 2B: Developing countries (continued) • Relationship between globalisation and poverty is complex, and depends on interactions between globalisation itself and: • investments in human capital and infrastructure • policies to promote credit and technical assistance for farmers • macro stability

  12. 2B: Developing countries (continued) Contrary to straightforward intuition based on SS, overall evidence of increases in wage inequality But, those involved in export activities are not necessarily the poorest: - sectors which are relatively unskilled intensive in a global context may require workers with more skills than the poor typically possess in developing countries - ex. of Mexico: both winners and losers among the poor, as large corn farmers gain, and small and medium corn farmers lose 14

  13. 2B: Developing countries (continued) • Careful interpretation HO / SS predictions (i.e., globalisation is pro-poor) are based on the assumption of free mobility of labour across sectors: labour has to move out of contracting sectors into expanding ones • However, evidence points towards severe impediments in labour mobility • Moreover, developing countries have historically protected their unskilled intensive sectors: trade means less protection for workers in these sectors, and poverty rates have increased in previously protected sectors

  14. 2B: Endogenous technological change • Empirically difficult to disentangle the SBTC vs Stolper-Samuelson explanation: both channel trough changes in relative prices • Foreign competition might induce firms to create/use new technologies, to fragment production, to differentiate their products, etc. • Technology could be endogenous to trade: a more competitive environment might induce firms to develop new technologies that are more skill intensive • Dinopoulos and Segerstrom (1999) • Thoenig and Verdier (2003)

  15. 2B: Dinopoulos and Segerstrom Role of trade openness in reducing the relative wage of less-skilled workers has been underestimated Assumption: R&D is skill intensive in all sectors, while production is low-skill intensive in all sectors • Trade liberalisation increases the profitability of innovating in all sectors • Trade liberalisation benefits to the leaders of each sector (Schumpeterian effect) • A Stolper-Samuelson-type effect implies that low-skilled workers are hurt this works even if countries have the same endowments (North-North trade, no change in relative prices)

  16. 2B: Dinopoulos and Segerstrom (continued) • Effects of trade liberalisation (between identical countries): • increases R&D investment • reduces the wage of low-skilled workers • results in skill-upgrading within each industry (R&D is skilled-labour intensive) • However, in this Schumpeterian version of SS: - relative prices are unaffected - wage inequality increases in both countries - trade induces factor-bias technological change - the rate of global technological change rises (at least temporarily)

  17. 2B: Thoenig and Verdier • Globalisation can trigger defensive innovations: - more intense international technological competition triggers a race to imitation and innovation - firms develop less imitable innovation - to lessen the threat of imitation and technological leapfrogging, firms have incentives to increase the share of tacit knowledge and non-codified know-how; they do so at the cost of a larger share of skilled labour

  18. 2B: Thoenig and Verdier (continued) • Results: • No effect on relative prices • Increased inequality in all regions, either under North-North or North-South trade • Consistence with empirical evidence: firms more exposed to the threat of foreign competition tend to bias more their innovations towards skilled labour

More Related