Do Trade Agreements Contribute to the Decline in Labor Share? Evidence from Latin American Countries

60 Pages Posted: 8 Nov 2022

See all articles by Hernán Ruffo

Hernán Ruffo

Universidad Torcuato Di Tella

Martín González-Rozada

Universidad Torcuato Di Tella

Abstract

In this paper, we explore the role of trade on the evolution of labor share in Latin American countries. We use trade agreements with large economies to capture the effect of sharp changes in trade. We apply synthetic control methods, combined with regression analysis, to estimate the average causal impact of trade agreements on labor share. While effects are heterogeneous in our eight case studies, the average impact is negative between 2 to 4 percentage points of GDP four years after the entry into force of the trade agreements. This result is robust to the specification used and to the set of countries in the donor pool. We also find that, after trade agreements, exports of manufactured goods and the share of industry to GDP increase on average. A decomposition shows that all the reduction in labor share is explained by a negative impact on real wages.

Keywords: Labor share, Trade agreements, Synthetic control methods

Suggested Citation

Ruffo, Hernán and González Rozada, Martín, Do Trade Agreements Contribute to the Decline in Labor Share? Evidence from Latin American Countries. Available at SSRN: https://ssrn.com/abstract=4271123 or http://dx.doi.org/10.2139/ssrn.4271123

Hernán Ruffo (Contact Author)

Universidad Torcuato Di Tella ( email )

Minones 2159
C1428ATG Buenos Aires, 1428
Argentina

Martín González Rozada

Universidad Torcuato Di Tella ( email )

Saenz Valiente 1010
Buenos Aires, C1428BIJ
Argentina
5411 51697318 (Phone)

HOME PAGE: http://www.utdt.edu/profesores/mrozada

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