Archive for January 24, 2015

TRADE REFORM: Wage Inequality and Globalization

January 24, 2015

In part, the real exchange rate depreciation in both countries cushioned firms against the trade reforms. However, evidence from both countries shows that firms responded to the threat of more imports by cutting profits. In other words, the costs of adjustment were shared with capital. For Mexico, Venables and Wijnbergen (1993) show that trade reforms led to significant reductions in price-cost margins.

For Morocco, Currie and Harrison (1997) and de Melo, Haddad and Horton (forthcoming) show that greater import competition led to significantly lower margins. For Morocco, one remaining puzzle is why the costs of adjustment were not shared (at least partially) by labor in the form of lower wages. Anecdotal evidence for Morocco suggests that profits were very high prior to the reform–possibly allowing manufacturers to sustain comfortable margins even after lowering prices to compete with the threat of imports. It also appears that labor has essentially no market power–allowing capital to collect the rents under protection and forcing capital to bear a large fraction of the costs of adjustment under trade reform.

TRADE REFORM: Trade Policies and Labor Market Adjustment 5

January 23, 2015

The expansion of foreign assembly plants in Mexico is the counterpart to the expansion of outsourcing by foreign firms, mainly in the United States. Feenstra and Hanson (1997) examine whether the shift from domestic manufacturing into foreign assembly has influenced the demand for skilled and unskilled labor in Mexico. For regional manufacturing industries, they find that the relative demand for skilled labor is positively correlated with the change in the number of foreign off-shore assembly plants, which suggests that foreign direct investment may have contributed to increasing wage inequality in Mexico.
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Alternative Explanations for the Lack of an Output Response

The correlations presented in Tables 3 and 4 suggest that the sluggish employment response can be attributed to lack of an output response to quota and tariff changes in the two countries. How do we explain the fact that output did not seem to adjust to reductions in quotas and tariffs? In Mexico and Morocco, the explanation is three-fold. First, a real exchange rate depreciation initiated in conjunction with the reforms cushioned in the impact on firms. Second, firms in both countries increased productivity. Finally, firms in Mexico and Morocco maintained output (and consequently employment) by cutting profit margins (in Mexico and Morocco) and cutting wages (in Mexico).

TRADE REFORM: Trade Policies and Labor Market Adjustment 4

January 22, 2015

Currie and Harrison (1997) examined the extent to which a sluggish adjustment of the labor force could explain the low elasticities of employment and wage responses to trade reform in Morocco. Using a lagged adjustment model of labor demand to test the speed of adjustment in Morocco, they found that with the exception of parastatals, employment adjustment takes place within the year. Their econometric estimates are in the same range as most of the industrial country estimates surveyed by Hamermesh (1993).

In terms of the speed of adjustment, private sector firms in Morocco are more like North American firms than European firms–the latter typically adjust employment more slowly. These comparisons support the contention that in Morocco, despite legislation which on paper appears to be quite restrictive, labor mobility is comparable to the United States–where there are essentially no restrictions on hiring or firing.

Another possible impediment to labor market adjustment are minimum wage laws. In both Mexico and Morocco, minimum wage laws were in place when the trade reforms were introduced. To the extent that minimum wages were binding, they could in principle act as a barrier to downward wage adjustment, explaining the lack of any wage response to tariff and quota changes. In Morocco, the real value of the minimum wage rose by 4.4 percent annually during the 1980s, which suggests that it could have played an important role in the adjustment process.

TRADE REFORM: Trade Policies and Labor Market Adjustment 3

January 21, 2015

One simple way to test whether imperfections in the labor markets are responsible for the low adjustment response is to examine changes in output, employment, and trade policies. If wages in both countries are flexible and labor adjustment is not costly, variations in employment should be highly correlated with variations in output. Lack of employment adjustment could then be explained by lack of output adjustment to changes in policies. If output levels only responded sluggishly to tariff and quota changes, then it would not be surprising if employment failed to respond as well.
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Tables 3 and 4 report correlations between changes in output, employment, and trade policies for Mexico and Morocco. Particularly in Morocco, but also to a lesser extent in Mexico, the results confirm that employment responded significantly to output changes, but that both output and employment were not highly correlated with changes in trade policies. In Table 3, which reports the correlations for Morocco, the correlation coefficient between changes in output and employment is .31 for annual data and .48 for long period (from 1984 to 1990) changes.

TRADE REFORM: Trade Policies and Labor Market Adjustment 2

January 7, 2015

For Mexico and Morocco, however, employment and wage effects of the trade reforms during the 1980s were relatively modest. Revenga (1997), using plant-level data for Mexico, finds a moderate reduction in firm-level employment following reductions in tariff levels and quota coverage. According to her estimates, changes in tariffs had no impact on employment. Reductions in quotas had a significant but relatively small impact: her estimates suggest that a reduction in quota coverage from 90 percent to 10 percent of output was associated with a 2 to 3 percent decline in employment. Currie and Harrison (1997) find an even smaller impact on employment of trade reform in Morocco.

Using plant-level data for Morocco between 1984 (when the trade reform began) and 1990, they find that employment in most manufacturing firms was unaffected by tariff reductions and the elimination of quotas. There was a significant employment response for firms only in some specific sectors–such as textiles and beverages. The 21 point decline in tariff protection for firms in the textiles, beverages, and apparel sectors was associated with a 6 percent decline in employment. Why was the extent of employment reallocation so low? We explore several possible explanations for the sluggish employment response, including rigidities in the labor market, below. To make sure your loan does not send you into a downward debt spiral, you have to get one from a reliable lender. At you always have best speedy cash payday loans at your disposal. Come visit us today and apply for a loan, you will be sure to get most affordable rates and reasonable terms.

TRADE REFORM: Trade Policies and Labor Market Adjustment

January 6, 2015

Evidence on Trade Policy and Labor Market Adjustment

One of the first attempts to measure the partial equilibrium effects of import competition is Grossman (1986, 1987). Grossman analyzed the impact of tariff protection in the United States, finding that wages are fairly unresponsive to (tariff-inclusive) import prices but that employment responses in some sectors have been quite significant. Grossman concludes from the low wage elasticities and higher employment elasticities that there is fairly high intersectoral labor mobility within the United States. You get money by applying for fast easy payday loans online, but how sure are you of getting the best rates and the most generous offers? With us you no longer have to guess and doubt, as you know you will always be getting the best deals out there. Get your loan fast here feel free to come by again.

Other cross-industry studies of the Unites States and Canada include Freeman and Katz (1991), Revenga (1992), and Gaston and Trefler (1993). These studies also find significant effects of changes in import competition on inter-sectoral changes in employment, but smaller effects on wages. In the United States and Canada, it appears that trade policy changes lead to employment reallocation across industries, with very little effects on wages.

TRADE REFORM: Trade Policies and Long Run Growth 6

January 4, 2015

The socialist dummy and the marketing board dummy are significant, but the openness variables are not. Nevertheless, by adding so many controls to such a limited number of observations, it is not surprising that the significance of many variables disappears. These exercises point to the limited validity of pure cross-section estimation; the use of panel data–which combine crosssection and time series data–is likely to yield more fruitful and more robust results (see, for example, Harrison (1996)). We are glad to offer quick instant cash loans that will solve all your problems. Your loan payments are withdrawn automatically from your account later, so you will be repaying your debt without even worrying about it. Apply now here and find out just how easy and convenient it is to borrow money.

Trade Policies and Growth: A Research Agenda

The problems associated with identifying the linkages between policies and performance could be addressed through three different avenues. First, better data on trade policies should be made available. Detailed data on tariffs and quotas are in fact collected by both the World Bank and the International Monetary Fund (IMF). At the World Bank, however, such data are often discarded after a trade policy loan is disbursed or appraised.