Do Excessive Wage Increases Raise Imports? Theory and Evidence

Labour, Employment and Work in New Zealand

This paper considers the relationship between international competitiveness and labour market outcomes in New Zealand manufacturing over a twenty-one-year period from 1978 through 1998. Regression evidence suggests increased globalisation has had important and significant impacts on labour demand, particular in the heavily trade-impacted manufacturing sector of the New Zealand economy. The analysis presented suggests foreign competitors are able to capture rents that would othe1wise accrue to domestic producers. In particular entry of international competitors into domestic markets decreases demand f01· (domestic) labour in those industries. In terms of the New Zealand economy, this is manifest, not through lower wages, but through lower employment levels in those markets most affected by imports. Exports, on the other hand, appear to have a positive effect on both wages and employment, although all of the former and much of the latter effect were offset by effects of the Employment...

Using pooled cross-section and time-series data for 17 manufacturing industries in Japan, this paper examines whether and how Japan's comparative advantage in manufacturing changed over the period 1970 to 1995. The results show that physical and human capital were the main sources of comparative advantage in manufacturing over the whole period, with human capital exerting the stronger influence. A gradual change in the relationship between net exports and factor intensities began to take place in the early to mid-1970s, when unskilled labour turned from being a source of comparative advantage to being a source of comparative disadvantage in manufacturing and human capital started to exert a significant influence on trade. The structural adjustment in Japan's manufacturing trade with respect to unskilled labour lagged about five to ten years behind the United States.

How do imports affect firm productivity? To answer this question, we estimate a structural model of importers using a panel of Hungarian firms. In our model with heterogenous goods, imported inputs improve productivity because (1) they are imperfect substitutes of domestic inputs; and (2) they have higher quality. This model yields a production function where output depends both on conventional factors and the number of product varieties imported. We estimate this import-augmented production function with the Olley and Pakes (1996) procedure, and find that increasing the fraction of product varieties imported from 0 to 100 percent leads to a productivity gain of 14 percent. About two thirds of this gain can be attributed to imperfect substitution, while the remainder is due to the higher quality of imports. We also compute the effects of a hypothetical tariff cut, and find that for small firms, it improves productivity through importing more product varieties, while for large firms it improves productivity through increasing existing imports.

2016

This paper considers the relationship between international competitiveness and labour market outcomes in New Zealand mam!f'acturing over a Menty-one-year periodji·om 1978 through 1998. Regression evidence suggests increased globalisation has had important and significant impacts on labour demand, particular in the heavily trade-impacted manufacturing sector of the New Zealand economy. The analysis presented suggests foreign comperitors are able to caprure rents that would othe1wise accrue to domestic producers. In particulm ~ entry of international competirors into domestic markets decreases demand f01 · (domestic) labour in those industries. In terms oft he New Zealand economy, this is man{{est, not through lower wages, but through lower employment levels in those markets most a.ff'ected by imports. Exports, on the other hand, appear to have a positive effect on both wages and employment, although all of the former and much of the fall er effect were offset by effects of...

This paper examines how trade liberalization affects unit value export prices via firms' import decisions on input quality and the number of imported varieties. The paper extends Melitz's (2003) model of trade with heterogeneous firms by introducing endogenous quality and endogenous number of imported varieties. The key predictions are as follows. First, an increase in productivity or a reduction in import tariff induces firms to spend more on each import variety, and choose to import higher-quality inputs (the "quality effect"). Second, higherproductivity firms or firms facing lower import tariff tend to import more varieties (the "variety effect"). Third, more importantly, due to the quality effect and the variety effect, there is a clear pattern of "quality ladder": firms importing more varieties or with higher productivity set higher export prices; trade liberalization further raises export prices set by firms. However, if one adopts the alternative assumption that quality is exogenous across firms, then completely opposite results would be expected: import tariff reduction would decrease export prices, and firms importing more varieties or with higher productivity set lower export prices. We test two competing theories using the merged Chinese firm-product trade data and the tariff data at the HS8 level by computing firm specific tariff. Our empirical results strongly support all the predictions of the endogenous-quality model, validate the mechanisms of the quality effect and the variety effect, and therefore confirm the pattern of the "quality ladder". Moreover, we find evidence to support the exogenous-quality model using quality-adjusted price estimates and the subsample of the goods with more homogeneity of quality.

2009

The analysis of the effects of firm-level international trade on wages has so far focused on the role of exports, which are also typically treated as a composite good. However, we show in this paper that firm-level imports can actually be a wage determinant as important as exports. Furthermore, we also find significant differences in the relationship between trade and wages across types of products. In particular, firms that increase their exports (imports) of high-(intermediate-) technology products tend to increase their salaries. Our analysis is based on unique data from Portugal, obtained by merging a matched firm-worker panel and a matched firm-transaction panel. Our data set follows the population of manufacturing firms and all their workers from 1995 to 2005 and allows for several control variables, including jobspell fixed effects.

Japan has experienced low or negative annual growth of wage and GDP and rapid growth of non-regular workers under the globalization since 1990s. This study seeks to identify the causal effect of exporting on wage, labor, and workforce composition in Japanese manufacturing and wholesale, using an extensive firm-level data. I employ propensity score matching technique and investigate whether firms that start ex-porting experience wage and labor growth and changes in workforce composition compared with non-exporters. I find positive effects on labor growth in manufacturing and wage growth in wholesale but no effect on the ratio of non-regular workers in both sectors.

1997

The Heckscher-Ohlin-Vanek (HOV) model offactor service trade is a mainstay of international economics. Empirically, though, it is a flop. This warrants a new approach. We test the HOV model with international and Japanese regional data. The strict HOVmodelperforms poorly because it cannot explain the international location of production. Restricting the sample to Japanese regions provides no help, inter alia giving rise to what Daniel Trefler calls the "mystery of the missing trade. " However, when we relax the assumption of universal factor price equalization, results improve dramatically. In sum, the HOV model performs remarkably well. (JEL F1, F14, R13 ) Starting with the classic "paradox" of Wassily W. Leontief (1953), and continuing through the influential work of Harry P. Bowen et al. (1987), the Heckscher-Ohlin (HO) model has consistently performed poorly in empirical tests. This led Trefler ( 1993 ) to aver that "its predictions are always rejected empirically." In spite of these empirical failures, the Heckscher-Ohlin model remains ubiquitous in theory, empirics, and policy analysis. In part, this reflects an a priori belief that the model embodies fundamental general equilibrium links between primary factors and production structure that we believe will be part of any fully articulated and empirically relevant theory.' Moreover, we will argue that when applied to regions that exhibit factor price equalization (FPE), the theory may do quite well as a simple description of the data.

2011

In this paper we investigate relationships between trade, wages, and the rewards to skill for U.S. workers during the period 1981-92. We isolate correlations between several types and measures of international trade and several types and measures of wage premiums, controlling for other important correlates. We find very different empirical patterns for trade with newly industrialized countries than for trade with traditional industrial partners. We also find very different empirical patterns for premiums paid to low-skilled workers than for those paid to high-skilled workers. The broadest summary of our results is as follows. Greater US. trade with newly industrialized countries is associated with increased rewards to skill and reduced rewards to pure labor, consistent with heightened wage inequality and distributional conflict. The opposite association appears for trade with traditional industrial countries. It is associated with lower rewards to skill, higher rewards to pure labor, and lessened distributional conflict. Our interpretation of these results rests on two models. The first model distinguishes intraindustry trade between two fully integrated northern countries from the intraindustry trade between them and a southern region whose factor prices vary from those in the north. North-north intra

International Review of Economics & Finance, 2014

In this paper we try to address the current debate on the link between trade liberalization and wage inequality in developing countries within a general equilibrium framework. For this we set up two distinct models of trade. First, assuming a specific factor model with full employment we show that for a small developing economy wage inequality is related to labour productivity rather than freer trade per se. The model also suggests that while trade may increase wage inequality, this does not imply that poverty increases as wages of unskilled workers increase. However, in the second model with surplus labour specific to the non-traded agricultural good which is also an intermediate good, we show that the two wage rates move in opposite direction; but either of the two wage rates could increase depending on whether the export good is skilled or unskilled labour intensive. Interestingly, in the event of rising wage inequality, the model predicts that absolute poverty may rise.