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Trade Liberalization and the Evolution of Skill Earnings Differentials in Brazil

  • Economics


No 585 ISSN 0104-8910 Trade Liberalization and the Evolution of Skill Earnings Differentials in Brazil Gustavo Gonzaga, Nae´rcio Menezes Filho, Maria Cristina Terra Abril de 2005 Os artigos publicados são de inteira responsabilidade de seus autores. As opiniões neles emitidas não exprimem, necessariamente, o ponto de vista da Fundação Getulio Vargas. Trade Liberalization and the Evolution of Skill Earnings Di¤erentials in Brazil� Gustavo Gonzaga PUC-Rio Naércio Menezes Filho IBMEC and USP Cristina Terray EPGE/FGV JEL classi cation: F13, J31 Keywords: Skill Earnings Di¤erentials, Trade Liberalization, Tari¤s Pass-through, Stolper-Samuelson March 15, 2005 Abstract Skilled labor earnings di¤erentials decreased during the trade liberal- ization implemented in Brazil from 1988 to 1995. This paper investigates the role of trade liberalization in explaining these relative earnings move- ments. We perform several independent empirical exercises that check the traditional trade transmission mechanism, using disaggregated data on tari¤s, prices, earnings, employment and skill intensity. We nd that: i) employment shifted from skilled to unskilled intensive sectors, and each sector increased its relative share of skilled labor; ii) relative prices fell in skill intensive sectors; iii) tari¤ changes across sectors were not related to skill intensities, but the pass-through from tari¤s to prices was larger in skill intensive sectors; iv) the decline in skilled earnings di¤erentials mandated by the price variation predicted by trade was even larger than the observed one. The results are compatible with trade liberalization accounting for the observed relative earnings changes in Brazil. They also highlight the importance of considering the e¤ects of di¤erentiated pass-through from tari¤s to prices. �The authors are grateful to Honório Kume for providing tari¤s data; Maurício Mesquita Moreira for help with price data; IBRE-FGV for providing domestic

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