Wages and International Trade

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IZA Seminar

Place: Schaumburg-Lippe-Str. 9, 53113 Bonn

Date: 25.11.2003, 12:15 - 13:30


Presentation by 

Francis Kramarz (CREST (ENSAE))


In this paper, I present direct micro-econometric evidence of the relation between individual wages of French workers and the import behavior of their employing firms. I use a simple bargaining model to examine the impact of firms’ imports on workers’ wages, in particular the effect of movements in the quasi-rent induced by competitive pressures. To estimate this model, I use a unique matched employer-employee data source that contains information on firms inputs, including imports by type of product and by country of origin, as well as individual characteristics of a representative sample of workers employed at those firms. Because the quasi-rent - a firm-level variable - and seniority - a personlevel variable directly affected by import competition are endogenous in the wage equation, I use export prices of US firms to various destinations as instruments. To summarize my results, I find a bargaining power below 0.20. I also show that workers’ wages deteriorate through competitive pressures. Two effects are at play. In industries where firms actively import finished goods, workers’ wage is decreased. But, firm’s own imports of the same goods "protect" its workers through a hold-up type effect. The total impact is negative for most workers. Highly educated workers appear to benefit from trade, in stark contrast with less educated workers. Also, very experienced workers, when still employed in manufacturing firms, appear to benefit from the protection effect but to be most affected by the firm’s competitors imports.

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