Trade Liberalization and Wage Inequality in the Philippines

Rana Hasan () and Karl Robert Jandoc ()
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Rana Hasan: Asian Development Bank
Karl Robert Jandoc: School of Economics, University of the Philippines Diliman

No 201006, UP School of Economics Discussion Papers from University of the Philippines School of Economics

Abstract: We examine the role of trade liberalization in accounting for increasing wage inequality in the Philippines from 1994 to 2000--a period over which trade protection declined and inequality increased dramatically. Using the approach of Ferreira, Leite, and Wai-Poi (2007), we find that trade-induced effects on industry wage premia and industry-specific skill premia account for an economically insignificant increase in wage inequality. A more substantial role for trade liberalization comes through trade-induced employment reallocation effects whereby reductions in protection appear to have led to a shift of employment to more protected sectors, especially services where wage inequality tended to be high to begin with. Nevertheless, the key drivers of wage inequality appear to be changes in economy-wide returns to education and changes in industry membership over and above those accounted for by our estimates of trade-induced employment reallocation effects. In order for trade liberalization to account for a relatively large portion of the increases in wage inequality, it would have to be a major determinant of the changes in economy-wide returns to education.

Pages: 41 pages
Date: 2010-05
New Economics Papers: this item is included in nep-dev, nep-int, nep-lab and nep-sea
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Published as UPSE Discussion Paper No. 2010-06, May 2010

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Persistent link: https://EconPapers.repec.org/RePEc:phs:dpaper:201006

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