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DECTI Trade Seminar: Trade Liberalization, Firm Heterogeneity, and Wages

Evidence from Matched Employer-Employee Data
Location:   MC10-100
Begins:   Sep 21, 2010 12:30
Ends:   Sep 21, 2010 14:00
Contact Person:   Yasmin D Souza

Speaker: Jennifer Poole, University of California, Santa Cruz

Abstract: In this paper, we use a linked employer–employee database from Brazil to examine the heterogeneous responses of exporters and non-exporters to trade reform. We begin our analysis at the firm-level and estimate how average wages respond to trade liberalization and test whether these responses vary by the firm’s export status. We find that wages at exporting firms increase relative to non-exporters and that the differential impact is mainly due to exporters in sectors in which Brazil has the comparative advantage. We then decompose firm-level average wages into a component reflecting the firm’s workforce composition and a component reflecting the firm’s performance. Our decomposition suggests the relative increase in wages is largely due to compositional differences at exporters indicating the importance of unobservable worker attributes. For this reason, we then enhance our firm-level results using worker-level data and introduce both observable and unobservable worker characteristics into our analysis. Here, we test for differential impacts of trade liberalization on otherwise identical workers employed in heterogeneous firms. We argue that any remaining differential wage response to liberalization by exporting firms, after accounting for heterogeneous workforce quality, as well as changes in the returns to worker characteristics, can be attributed to rent-sharing.

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