Working Paper: NBER ID: w17256
Authors: Pravin Krishna; Jennifer P. Poole; Mine Zeynep Senses
Abstract: In this paper, we use a linked employer-employee database from Brazil to evaluate the wage effects of trade reform. With an aggregate (firm-level) analysis of this question, we find that a decline in trade protection is associated with an increase in average wages in exporting firms relative to domestic firms, consistent with earlier studies. However, using disaggregated, employer-employee level data, and allowing for the endogenous assignment of workers to firms due to match-specific productivity, we find that the premium paid to workers at exporting firms is economically and statistically insignificant, as is the differential impact of trade openness on the wages of workers at exporting firms relative to otherwise identical workers at domestic firms. We also find that workforce composition improves systematically in exporting firms, in terms of the combination of worker ability and the quality of worker-firm matches, post-liberalization. These results stand in stark contrast to the findings reported in many earlier studies and underscore the importance of endogenous matching and, more generally, non-random labor market allocation mechanisms, in determining the effects of trade policy changes on wages.
Keywords: Trade Reform; Wages; Worker Mobility; Brazil
JEL Codes: F16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Trade liberalization (F13) | Higher wages for workers at exporting firms compared to domestic firms (J31) |
| Decline in trade protection (F13) | Increase in average wages in exporting firms (J39) |
| Decline in trade protection (F13) | Insignificant wage premium for workers at exporting firms (F16) |
| Decline in trade protection (F13) | Improvements in workforce composition in exporting firms (J21) |
| Improvements in workforce composition in exporting firms (J21) | Changes in workforce quality explain observed effects (J24) |