Abstract
The literature concerning the effect of tariffs on the inter-industry wage premium has not addressed the role of total factor productivity (TFP) in determining both the wage premium and tariffs. This omission not only overlooks an important determinant of wage premium but also invalidates the use of the pre-reform tariff level as an instrument for the change in tariffs. Based on an analysis of Colombian data, I find that including TFP in the estimated model of the effects of tariffs on the wage premium leads to a 41% decrease in the effect of tariffs on the inter-industry wage premium relative to the model that omits TFP. More specifically, a 10 percentage point decrease in tariffs reduces the wage premium by 1.01%, whereas a 10% increase in TFP raise wage premium by 1.6%. This finding suggests the importance of using policies that boost productivity to offset the effect of tariffs on the wage premium.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 408-419 |
| Number of pages | 12 |
| Journal | Applied Economics |
| Volume | 46 |
| Issue number | 4 |
| DOIs | |
| State | Published - Feb 2014 |
Keywords
- Colombia
- inter-industry wage premium
- productivity
- trade liberalization
ASJC Scopus subject areas
- Economics and Econometrics