Trade, Firms, and Wages: Theory and Evidence
How does trade liberalization affect wages? This is the first paper to consider in theory and data how the impact of final and intermediate input tariff cuts on workers' wages varies with the global engagement of their firm. Our model predicts that a fall in output tariffs lowers wages at import-competing firms, but boosts wages at exporting firms. Similarly, a fall in input tariffs raises wages at import-using firms relative to those at firms that only source locally. Using highly detailed Indonesian manufacturing census data for the period 1991 to 2000, we find considerable support for the model's predictions.
We would like to thank David Weinstein and participants at seminars at the Federal Reserve Bank of New York and the World Bank for many useful suggestions. Jennifer Peck and Adam Sacarny provided excellent research assistance. The views expressed in this working paper are those of the authors and do not necessarily represent those of the Federal Reserve Bank of New York. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.