Wage Effects of Trade Reform with Endogenous Worker Mobility

45 Pages Posted: 29 Jul 2011

See all articles by Pravin Krishna

Pravin Krishna

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS); Brown University - Department of Economics; National Bureau of Economic Research (NBER)

Jennifer P. Poole

University of California, Santa Cruz

Mine Zeynep Senses

Johns Hopkins University - SAIS

Date Written: July 2011

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.

Suggested Citation

Krishna, Pravin and Poole, Jennifer and Senses, Mine Zeynep, Wage Effects of Trade Reform with Endogenous Worker Mobility (July 2011). NBER Working Paper No. w17256. Available at SSRN: https://ssrn.com/abstract=1898512

Pravin Krishna (Contact Author)

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS) ( email )

1740 Massachusetts Avenue, NW
Washington, DC 20036-1984
United States

Brown University - Department of Economics ( email )

64 Waterman Street
Providence, RI 02912
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jennifer Poole

University of California, Santa Cruz ( email )

1156 High St
Santa Cruz, CA 95064
United States

Mine Zeynep Senses

Johns Hopkins University - SAIS ( email )

1740 Massachusetts Avenue, NW
Washington, DC 20036-1984
United States
202-663-5687 (Phone)
202-663-7718 (Fax)

HOME PAGE: http://www.sais-jhu.edu/faculty/senses

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