Working Paper: CEPR ID: DP2033
Authors: Riccardo Faini; Anna M. Falzoni; Marzio Galeotti; Rodolfo Helg; Alessandro Turrini
Abstract: International economic integration is often blamed for the deteriorating fortunes of unskilled workers in industrial countries. We look at the labour market impact of trade and foreign direct investment in the case of Italy. Our empirical framework allows for trade, technology and factor supply effects. We find that international trade did not contribute to Italy's labour market problems. Indeed, given that Italy holds quite a distinct pattern of trade specialization, compared to other industrialized countries, international integration as reflected in falling import prices may have boosted the demand for labour there. We also argue that the inability of the Mezzogiorno's economy to adjust to the changing international environment is one of the main stumbling blocks in Italy's economy. Finally, we find that greater firm's mobility may have weakened the power of trade unions and contributed to wage moderation.
Keywords: international trade; foreign direct investment; wages; employment
JEL Codes: F16; F23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| International trade did not contribute to Italy's labor market problems (F16) | Labor market conditions in Italy (J29) |
| Falling import prices (F14) | Boosted labor demand (J23) |
| Inability of the Mezzogiorno economy to adjust to changing international conditions (N13) | Barrier to economic growth (F69) |
| Greater firm mobility (J62) | Weakened trade union power (J58) |
| Weakened trade union power (J58) | Contributed to wage moderation (J38) |
| Increase in the price of imports (F69) | Decrease in the wage rate (F66) |
| Trade liberalization (F13) | Increase in real wage rates (J39) |
| Labor-saving technological progress (O49) | Deteriorating labor market conditions (F66) |
| Trade shocks vary regionally (F14) | Wage sensitivity to trade shocks varies between northern and southern Italy (F16) |