Labor Demand and Trade Reform in Latin America
44 Pages Posted: 20 Apr 2016
Date Written: November 2000
Data provide only mixed support for the idea that trade liberalization has an impact on own-wage labor demand elasticities. If globalization is making the lives of workers more insecure, it is probably working through some other mechanism.
There are concerns that trade reform and globalization will increase the uncertainty that the average worker, especially the relatively unskilled worker, faces. The increased competitiveness of product markets and greater access to foreign inputs, the argument goes, will lead to more elastic demand for workers. This may have adverse consequences for both labor market volatility and wage dispersion.
Fajnzylber and Maloney argue that while the case that trade liberalization should increase own-wage elasticities may be broadly compelling for competitive import-competing industries, it is less so for imperfectly competitive, nontradable, or export industries. They test the hypothesis using establishment-level panel data from three countries with periods of liberalization.
The data provide only mixed support for the idea that trade liberalization has an impact on own-wage elasticities. No consistent patterns emerge.
If globalization is making the lives of workers more insecure, it is probably working through some other mechanism.
This paper - a product of the Poverty Reduction and Economic Management Sector Unit, Latin America and the Caribbean Region - is part of a larger effort in the region to study the impact of liberalization on labor market risk. William Maloney may be contacted at firstname.lastname@example.org.
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