Wages and International Trade

Francis Kramarz ()

No 2003-27, Working Papers from Center for Research in Economics and Statistics

Abstract: In this paper, I present direct micro-econometric evidence of the relationbetween individual wages of French workers and the import behavior of their employingfirms. First, a model shows that the impact of firms' imports on workers' wages notonly comes from movements in the quasi-rent induced by competitive pressures but alsofrom alterations of workers and firms threat points in the bargaining process induced bytrade. To estimate this model, I use a unique matched employer-employee data sourcethat contains information on firms inputs, including imports by type of product andby country of origin, as well as individual characteristics of a representative sample ofworkers employed at those firms. Because the quasi-rent - a firm-level variable - and seniority- a person-level variable directly affected by import competition are endogenousin the wage equation, I use export prices of US firms to various destinations as instruments. To summarize my results, I find a bargaining power below 0.20. I also showthat workers' wages deteriorate through competitive pressures. Two effects are at play.In industries where firms actively import finished goods, workers' wage is decreased.But, firm's own imports of the same goods "protect" its workers through a hold-upeffect. The total effect is negative for most workers. Highly educated workers appear tobenefit from trade, in stark contrast with less educated workers. Also, very experiencedworkers, when still employed in manufacturing firms, appear to benefit from the hold-upeffect but to be most affected by the firm's competitors imports.

Date: 2003
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