Trade reforms and wage inequality in Colombia

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 labor 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 labor 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

Job Creation and Trade in Manufactures: Industry-Level Analysis Across Countries

This paper examines industry-level responses of manufacturing employment in the context of globalization using a large sample of developed, developing, and transition economies. We find that developing countries need atypically high rates of value-added growth (about 10 %) to increase manufacturing employment appreciably (about 4 %). The employment benefits of export orientation are also modest even in “comparative advantage” industries of developing countries. However, diversifying the export basket contributes significantly to employment growth, particularly in the medium- and high-technology industries. Import competition does not undermine employment growth in low-technology industries of developing countries while it displaces jobs in the same industries in Organisation for Economic Co-operation and Development (OECD) and transition economies. For developing countries, import-induced job losses are higher in the more capital-intensive medium-technology industries. Jobs in high-technology industries are less sensitive to imports with positive relationships observed in the OECD. Investment also complements job creation in low-technology industries of developing countries that have yet to industrialize