Trade Liberalization and the Skill Premium: A Local Labor Markets Approach
We develop a specific-factors model of regional economies that includes two types of workers, skilled and unskilled. The model delivers a simple equation relating trade-induced local shocks to changes in local skill premia. We apply the methodology to Brazil's early 1990s trade liberalization and find statistically significant but modest effects of liberalization on the evolution of the skill premium between 1991 and 2010. The methodology uses widely available household survey data and can easily be applied to other countries and liberalization episodes.
The authors thank Sam Bazzi, Penny Goldberg, Nina Pavcnik, and seminar participants at the American Economic Association meetings for helpful comments, Daniel Lederman and the Office of the Chief Economist for Latin America and the Caribbean at the World Bank for warmly hosting Dix-Carneiro while part of the paper was written, and Andrea Pellandra for excellent research assistance. Remaining errors are ours. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Rafael Dix-Carneiro & Brian K. Kovak, 2015. "Trade Liberalization and the Skill Premium: A Local Labor Markets Approach," American Economic Review, vol 105(5), pages 551-557.