Round Table Discussion - Trade and Global Poverty: Wages L Alan Winters University of Sussex, CEPR, IZA, GDN

26 June 2013Round Table2 Factor Incomes Total income is a sum across – Sources of income – Individuals in household – Wages often discussed in context of inequality Need to decide how to aggregate across time – Year, cycle, lifetime? and, for aggregates, across space – Village, district, state, country?

26 June 2013Round Table3 Labour Income Wages and/or employment Structure of labour markets is critical - large differences across countries/regions – mobility between regions – migration key – mobility between sectors, firms – specific factors model, rent-sharing – flexibility of wages Results differ considerably

Stolper-Samuelson Theorem Inter-sectoral mobility; flexible wages economy-wide view – Poor record empirically – Data difficulties, dimensionality, defining factors, assumption of integrated labour markets – Labour rarely re-allocates in a major way Labour heterogeneity – several(?) groups – Unskilled labour usually does worst, not best – Skilled labour use increasing in most sectors (mid. Income countries) 26 June 20134Round Table

The Widening Skills Gap Other economy-wide views: Initial pattern of protection (Lat Am) China has pinned the unskilled wage at very low levels Tasks that relocate are relatively unskilled in the North and relatively skilled in the South (Feenstra and Hanson, 1996) – Outsourcing but not exclusively so 26 June 20135Round Table

Complementarity Skills and natural resources or capital are complementary Liberalisation increases imports of equipment that need skilled labor to work Defensive innovation is skill biased – innovation related to size of shock Export penetration requires skills (quality higher) Intra-sectoral re-allocation – unskilled tasks outsourced (Grossman and Rossi-Hansberg) 26 June 20136Round Table

Segmented Labour Markets: Space Segmentation seems pretty dominant Geographical segmentation – across regions – Especially for multi-island economies – Large economies – Ethnically diverse countries Repeats integrated-economy results on smaller scale – e.g central highlands of Vietnam and coffee 26 June 20137Round Table

26 June 2013Round Table8 Arguably still more plausible Recent boom in research Labour as the specific factor Workers may share sectoral/firm rents influenced by trade policy; ‘fair wage’ models Variation with regional ‘exposure’ to globe: – Import-competing sectors lose from liberalisation, especially if it reduces regulatory rents – Export sectors gain Segmented Labour Markets: Sectors and Firms

26 June 2013Round Table9 Heterogeneous firms (Melitz, 2003) Exporters more efficient; – May correlate with use of intermediates (Amiti) – Liberalisation may increase the gap if it boosts exports Heterogeneous workers (within groups) – Exporters get better workers (Helpman et al) – Pay better, better at selecting? Helps to explain significant inequality within sectors and occupations Heterogeneity

26 June 2013Round Table10 Egger, Egger, Kreickmeier (Europe) – exporting firms pay higher wages Amiti, Cameron (Indonesia) – Liberalising imports of intermediates narrows skills premium Juhn et al (Mexico in NAFTA) – Improved market access boosts technology level and so increases relative demand for female workers (brain vs.brawn) Examples

Employment Sectoral re-allocation vs. unemployment Sometimes moves into informality – especially if labour regulation strict (Goldberg and Pavcnik) – But informality is not the same as poverty Nicita – simulates Madagascar textiles boom – Identifies workers called to new jobs (out of informal sector) – Not always the poor – skills, location, 26 June Round Table

26 June 2013Round Table12 Thank you