Ebook International Trade and Gender Wage Discrimination: Evidence from East Asia
Growth in international trade can entail beneficial effects for workers in developing countries. Based on neoclassical trade theory, trade expansion is expected to increase the demand for relatively abundant, lower-skilled labor and reduce wage disparities among groups of workers. A growing number of empirical studies have used partial-equilibrium approaches to estimate the impact of international tradeas measured by import penetration, exchange rates, protection rates, and trade reformon wage dispersion in developing countries. Changes in overall wage inequality vary across countries, partly reflecting the complexity of changes in the overall macroeconomic environment and in the underlying labor market dynamics.
Moreover, the use of firm-level or industry-level data in most of this research provides limited information on worker productivity characteristics, making it more difficult to disentangle reported trade impacts from other exogenous changes in worker characteristics and their associated market returns.
Because women tend to cluster in lower-skill jobs and men cluster in higher-skill jobs, neoclassical theory similarly predicts trade-induced changes in skill demand to reduce pay differentials between men and women. Yet international trade can affect women’s relative pay through another channel whereby trade acts as an instrument of industry competitiveness. In particular, rising competition associated with international trade can generate increased pressure on firms to engage in cost-cutting practices. Reinterpreting Becker’s (1959) theory in an open economy context, one would expect that costly discrimination could not persist in the face of long-run competition. Hence rising competition from international trade is expected to eliminate any discriminatory pay differentials between men and women in the long run.
In contrast, according to the non-neoclassical approach, persistent discrimination is consistent with a competitive economy. In this approach, wages are determined by not only worker skills but also job characteristics, which shape the respective bargaining power of groups of workers. In the context of a hierarchy of jobs and the specter of joblessness, both characteristics of a typical capitalist economy, certain groups of workers are better placed to bargain for and maintain favorable employment conditions. Firms may also find it advantageous to maintain a lower wage workforce with a weaker bargaining power while paying higher wages to groups of workers with better options. In such a context, trade competition may cause the decline of certain groups of industries and rise of others, leaving workers in declining industries at a disadvantage in bargaining for higher wages in new jobs. Hence far from becoming an equalizing force, trade competition may well cause dislocations that widen wage disparities among groups of workers.
Adopting the neoclassical framework, a number of empirical studies have examined how discrimination in the United States changes in response to the competitive environment. Consistent with Becker’s original formulation, much of this work has focused on domestic industry structure. For example, Black and Strahan (2001) find that by reducing rents that previously accrued to men, banking-sector deregulation leads to improvements in women's relative wages beyond what can be explained by improvements in women's skill characteristics. In contrast, Hellerstein, Neumark and Troske (1997) argue that market forces over time have little impact on reducing discrimination. Although plants with higher levels of market power show evidence of wage discrimination by sex compared to plants with less market power, the plants with more market power experience no growth penalty over time. Racial discrimination has also been examined in the context of industries that have greater or lesser levels of concentration, with mixed results.
For example, deregulation in the trucking industry has led to lower real wages for white workers, resulting in reduced wage disparities between whites and blacks (Peoples and Saunders, 1993; Peoples and Talley, 2001). However, findings in Agesa et al. (2001) actually contradict the idea that firms in concentrated industries can afford to engage in earnings discrimination against minority workers. On the employment side, Coleman (2002) also finds little evidence to support the neoclassical framework, as minority employment is positively related to market concentration in urban areas. Thus empirical studies have provided mixed support for Becker’s predicted relationship between market structure and discrimination.
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