Trade Openness and the Skill Premium — An Inverted - ‘U’ Relation?

Abstract

Relying on linked employer–employee data from the German manufacturing sector in 1996–2010, I study the relation between the share of exporting establishments and the skill premium within narrowly defined industries. I document that the skill premium tends to be higher in industries with a larger share of exporting establishments. However, once unobserved industry heterogeneity is taken into account, the empirical evidence suggests an inverted-‘U’ relation between the share of exporting establishments and the skill premium.

Keywords: skill premium, wage inequality, international trade, exporting, heterogeneous firms, linked employer–employee data

JEL Classification: F16, J31, J62