Trade Reforms and Wage Inequality in Colombia

54 Pages Posted: 8 Oct 2003

See all articles by Orazio Attanasio

Orazio Attanasio

Dept of Economics Yale University; Institute for Fiscal Studies (IFS); University College London - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Pinelopi Goldberg

Yale University - Department of Economics; National Bureau of Economic Research (NBER); Yale University - Cowles Foundation; Peterson Institute for International Economics; Bureau for Research and Economic Analysis of Development (BREAD); Centre for Economic Policy Research (CEPR)

Nina Pavcnik

Dartmouth College - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: August 2003

Abstract

We investigate the effects of the drastic tariff reductions of the 1980s and 1990s in Colombia on the wage distribution. We identify three main channels through which the wage distribution was affected: increasing returns to college education, changes in industry wages that hurt sectors with initially lower wages and a higher fraction of unskilled workers, and shifts of the labour force towards the informal sector that typically pays lower wages and offers no benefits. Our results suggest that trade policy played a role in each of the above cases. The increase in the skill premium was primarily driven by skilled-biased technological change; however, our evidence suggests, that this change may have been in part motivated by the tariff reductions and the increased foreign competition to which the trade reform exposed domestic producers. With respect to industry wages, we find that wage premiums decreased by more in sectors that experienced larger tariff cuts. Finally, we find some evidence that the increase in the size of the informal sector is related to increased foreign competition - sectors with larger tariff cuts and more trade exposure, as measured by the size their imports, experience a greater increase in informality, though this effect is concentrated in the years prior to the labour market reform. Nevertheless, increasing returns to education, and changes in industry premiums and informality alone cannot fully explain the increase in wage inequality we observe over this period. This suggests that overall the effect of the trade reforms on the wage distribution may have been small.

Keywords: Inequality, trade liberalization, Colombia, labour market

JEL Classification: F10, F13, J31

Suggested Citation

Attanasio, Orazio and Goldberg, Pinelopi (Penny) and Pavcnik, Nina, Trade Reforms and Wage Inequality in Colombia (August 2003). Available at SSRN: https://ssrn.com/abstract=454142

Orazio Attanasio (Contact Author)

Dept of Economics Yale University ( email )

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Centre for Economic Policy Research (CEPR)

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Pinelopi (Penny) Goldberg

Yale University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Yale University - Cowles Foundation

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Peterson Institute for International Economics ( email )

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Bureau for Research and Economic Analysis of Development (BREAD) ( email )

Duke University
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Centre for Economic Policy Research (CEPR) ( email )

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Nina Pavcnik

Dartmouth College - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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National Bureau of Economic Research (NBER)

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