Skip to main content
main-content

Über dieses Buch

This book deals with the impact that international trade is likely to have on the skilled-unskilled wage gap in a typical developing economy. This is the first theoretical monograph on this particular issue which has already generated substantial debate and voluminous work for the developed countries. A unique feature of this work is that it tries to explain the possibility of rising inequality across trading nations and looks at the segmented labour markets of the poor economies. It makes convincing arguments that the standard general equilibrium models, the main workhorse of trade theory, can be given a creative facelift to address a number of critical and emerging issues in the area of trade and development.

Inhaltsverzeichnis

Frontmatter

Introduction

1. Introduction

Abstract
The imagined boundary of the world is getting smaller every day and that too at a very rapid pace. The volume of world trade and communications has grown phenomenally over the recent years. Physical and policy barriers to trade and investment are being systematically abolished, thanks to the increasing use of web based contacts and coordinated process of liberalization through the institutions such as the WTO. The earlier stance of protected industrialization has given way to deregulation and reform in the developing nations with a switch towards free international trade and foreign investment. At times it is hard to argue against the policies that put emphasis on the national welfare as opposed to global welfare, policies that provide the government with power to redistribute, enforce equity and correct negative externalities. But the historical evidence so far has not been in favour of socialistic and closed economies. For example, it is now well known that the Indian economy somehow did not respond to the maze of regulations and controls. The so called public sector has not performed well and most importantly the condition of the bottom 30 percent of the population has not changed much over the long phase of planned development. The Russian debacle along with the political turn around in the Eastern Europe also reflected the need for experimentation of a different kind. However, the Chinese case stands out as a reasonable success story of reform without the sacrifice of the basic tenets of socialism.
Sugata Marjit, Rajat Acharyya

Evidence and the Debate

Frontmatter

2. Wages and Employment

Abstract
Despite asymmetries in the extent of changes in relative wages of skilled and unskilled workers, the experiences of the high, middle and low income countries are more or less similar. Except for the East Asian countries, the general trend has been an increase in the ratio of skilled to unskilled wages, i.e., a widening wage-gap between skilled and unskilled workers, in most part of the globe since 1970s [Wood (1997)]. In Europe, where national institutions have a particularly strong influence on wage settings, the deterioration of the relative position of relatively unskilled workers is reflected in rising unemployment of the unskilled. Though concerns for widening wage-gap have been rather recent, employment aspect has always held the centre-stage in evaluating success and continuation of trade policies. It is such concerns, particularly the disemployment effect, that in many instances policy reversals are in fact observed. For example, during 1965-66 in Israel the liberalization programmes were deferred whereas Spain partially reversed its policies in its third episode of liberalization during 1977-80.
Sugata Marjit, Rajat Acharyya

Explaining Symmetric Wage-Gap

Frontmatter

3. The Standard Trade Theory: How far Does it Go?

Abstract
The theory underlying the debate on the link between trade liberalization and widening wage-gap has been the Heckscher-Ohlin-Samuelson (HOS) model of trade. The cornerstone of the trade theorists’ argument is one of its core propositions, the celebrated Stolper-Samuelson theorem: Increased unskilled labour-intensive imports from countries such as China or Mexico and the consequent fall in the domestic price of the import-competing goods in the US depresses the unskilled wage and raises the skill wage thereby widening the wage-gap. There are, however, two major problems with this argument. First, there is no clear empirical evidence regarding the fall in the domestic price of the unskilled labour-intensive import-competing goods in the US which triggers the StolperSamuelson result, i.e., causes the relative wage to move against the unskilled labour [Bhagwati (1995), Learner (1995)]. Second, following the Heckscher-Ohlin argument, increased trade with the developed countries (DCs) should imply a declining wage-gap in the less developed countries (LDCs) abundant in the unskilled labour. But, as mentioned earlier, this has not happened in Latin America and in large parts of Asia.
Sugata Marjit, Rajat Acharyya

4. Trade Liberalization and Symmetric Wage-Gap

Abstract
From the above discussions it is clear that in the standard 2x2x2 HOS framework or its specific-factor variant, trade liberalization must affect the wage-gap asymmetrically in the North and South. Only when endowment differences across the nations are significant and technology exhibits factor intensity reversal, can we expect symmetric changes in the wage-gap as is empirically observed. But this is only a special case. Extension of the basic model to more than two factors of production also cannot explain the widening wage-gap phenomenon.
Sugata Marjit, Rajat Acharyya

5. Input Trade: An Alternative Explanation

Abstract
Of late, a few trade theorists have advocated that direct foreign investments, factor flows and trade in intermediate products can be the likely sources of symmetric changes in the wage-gap across the North and South. Markusen and Venables (1996) emphasize the role of multinationals to be more important as they alter the nature of trade from trade in final goods to trade in skill-intensive producer services. That direct foreign investment may explain the wage-gap phenomenon has also been advocated by Feenstra and Hanson (1996, 2001), Lawrence (1994) and Slaughter (1994)
Sugata Marjit, Rajat Acharyya

Trade, Capital Flow and Employment

Frontmatter

6. Liberalization and Employment in the Organized Sector

Abstract
In Europe, particularly in Germany, France, Portugal, Spain, Sweden and UK, the deteriorating position of the unskilled workers has been reflected in rising unemployment among them. Similar is the story in many parts of Asia and Latin America. Referring back to Table 2.11, in Chile, Colombia, Philippines, Spain, Turkey and India, unemployment increased substantially during their respective liberalization episodes. In India, the burden of such trade-induced adjustments is borne mostly by those engaged in agriculture, mining and processed primary manufacturing. There has also been quite a sharp fall in employment in skill-intensive manufacturing sector both in India and China. Part of the reason for such displacement of labour, as is often argued, is the inflexible labour markets where money wages often cannot be adjusted downward to allow the industry to adjust its labour costs to trade-induced shocks.
Sugata Marjit, Rajat Acharyya

Trade Liberalization, Wage Inequality and Employment in the South

Frontmatter

7. Diverse Trade Pattern, Complementarity and Fragmentation

Abstract
The major deficiency of the theories, used to explain wage movements in Southern countries, is a complete overlook of the diverse trade pattern reflected in the skill-intensity of their export items. Such diverse trade pattern cannot be effectively captured through an aggregative index of skill-intensity of exports. For example, India’s export pattern alone reveals the drawback of such aggregate measures. From exporter of primary and agricultural products at large, India has emerged as a major exporter of software that is by any measure highly skill-intensive. Liberalization of investment and export opportunities has fuelled a boom in high-technology products that involve good deal of skilled labour. Thus, despite agricultural products being exported, it would not only be unfair but also perverse to assume India’s exports as relatively unskilled-labour intensive while analyzing the terms of trade (TOT) and wage-gap nexus there. Quite a few East Asian and Latin American countries also have a wide range of skill-intensive exports.
Sugata Marjit, Rajat Acharyya

8. Segmented Input Markets and Non-Traded Good

Abstract
Labour markets in LDCs are usually segmented into formal (or organized) and informal (or unorganized) sectors. Typically the formal sector is the high-wage, unionized sector with job security and fringe benefits whereas in the informal or unorganized sectors, wages are determined by market forces, are low compared to the unionized sectors and jobs are mostly casual. Self-employed petty producers and traders in the informal sectors are often those who cannot get jobs in the high-wage organized segment of the labour market. As well documented in Agenor (1996), Cole and Sanders (1985), Fields (1990) and Mazumdar (1983, 1993), about sixty percent of total labour force in the developing world are employed in such non-unionized informal sectors. In case of India, according to the 1991 Census Report, the figure is staggering ninety percent during the 1980s. The situation has not changed much in the 1990s. In fact, Dev (2000) finds that during 1973-1993, in almost all the sectors the share of informal segments has either remained the same or has increased. This has been highest in agriculture around 99 percent, followed by about 90 and 81 percents respectively in construction and manufacturing.
Sugata Marjit, Rajat Acharyya

9. Trade, Skill Formation and the Wage-Gap

Abstract
In the theoretical analyses of the earlier chapters the focus has been on the wage inequality between skilled and unskilled at a very aggregate level instead of on the changes in wage inequality among workers of different skills or abilities. But intra-skill wage distribution can easily be a separate focal point for research in the current context. In Chile, for example, the wage-gap between workers with university degree and with secondary education (measured by their wage ratio) has been more pronounced than that between workers with university degree and with primary education for all age groups (see Table 2.4). In India, on the other hand, the wage-gap between graduates and non-literates has in fact declined in the manufacturing sector during 1987-94 (see Table 2.6). The middle-aged Chilean workers with university degree had similar experience of declining wage-gap vis-à-vis those with secondary education. These small but curious pieces of evidence seem to deserve some theoretical attention. At the same time, almost all-round growing wage inequality in Chile across skills, however asymmetric that may be, and somewhat mixed experience in India, warrant different explanations for the possible underlying causes.
Sugata Marjit, Rajat Acharyya

10. Conclusion

Abstract
The phenomenon of growing wage inequality across the world during the 1980s and 1990s has posed quite a few challenges to the economists. Foremost is to clearly distinguish the roles of more open-minded trade policies and technological changes as dominant factors behind such outcomes. Second, if trade is the main cause, how to explain the widening wage-gap both in the North and in the South. The latter has been the major concern for the trade theorists primarily because the existing theories and models of trade fail to establish such a nexus between freer trade and wage inequality. As is discussed in Chapter 3, if one goes by the standard HOS model, freer trade can at best lead to asymmetric wage movements in the North and the South. Moreover, South being relatively abundant in unskilled-labour, should experience an increase in the relative wage for its unskilled workers. Thus, if one has to argue in favour of trade causing wage inequality, the first task at hand would be to establish the observed relationship at the theoretical level.
Sugata Marjit, Rajat Acharyya

Backmatter

Weitere Informationen