Wage Inequality and Input Trade Liberalization: Firm-Level Evidence from China
45 Pages Posted: 22 Sep 2013
Date Written: September 22, 2013
This paper investigates how input trade liberalization affects fi rm-level wage inequality between skilled and unskilled labor. A fall in input tariffs generates increased fi rm pro fits, which, in turn, widens wage inequality since skilled labor enjoys a larger proportion of the incremental pro fits. We analyze this type of channel with an augmented Amiti-Davis (2012) model. Using Chinese fi rm-level production data, we fi rst estimate and calculate fi rm-level wage inequality, which is found to be much greater than that in the U.S. After controlling for possible endogeneity, we find evidence consistent with our theoretical prediction that input trade liberalization widens within-fi rm wage inequality.
Keywords: Wage Inequality, Input Trade Liberalization, Firm Evidence
JEL Classification: F10, F12, F14
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