Trade Liberalization and Wage Inequality in the Philippines

40 Pages Posted: 30 Jun 2010

See all articles by Rana Hasan

Rana Hasan

Asian Development Bank; University of Maryland - Department of Economics

Karl Robert Jandoc

Asian Development Bank

Date Written: March 2010

Abstract

We examine the role of trade liberalization in accounting for increasing wage inequality in the Philippines from 1994 to 2000 - a period over which trade protection declined and inequality increased dramatically. Using the approach of Ferreira, Leite, and Wai-Poi (2007), we find that trade-induced effects on industry wage premia and industry-specific skill premia account for an economically insignificant increase in wage inequality. A more substantial role for trade liberalization comes through trade-induced employment reallocation effects whereby reductions in protection appear to have led to a shift of employment to more protected sectors, especially services where wage inequality tended to be high to begin with. Nevertheless, the key drivers of wage inequality appear to be changes in economywide returns to education and changes in industry membership over and above those accounted for by our estimates of trade-induced employment reallocation effects. In order for trade liberalization to account for a relatively large portion of the increases in wage inequality, it would have to be a major determinant of the changes in economywide returns to education.

Suggested Citation

Hasan, Rana and Jandoc, Karl Robert, Trade Liberalization and Wage Inequality in the Philippines (March 2010). Asian Development Bank Economics Working Paper Series No. 195. Available at SSRN: https://ssrn.com/abstract=1632222 or http://dx.doi.org/10.2139/ssrn.1632222

Rana Hasan (Contact Author)

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States
808-944-7590 (Phone)
808-944-7399 (Fax)

Karl Robert Jandoc

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

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