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Wage Response to Trade Liberalization: Compositional Changes and Matching Effects

This study explores why average wages at exporting firms increase compared to non-exporting firms after trade liberalization. Findings suggest the differential wage response is linked to compositional changes in worker characteristics and match quality. The impact of trade policy measures, such as tariffs and NTBs, is also discussed in relation to wage dynamics.

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Wage Response to Trade Liberalization: Compositional Changes and Matching Effects

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  1. Comments on:Krishna, Poole and Senses, "Trade Liberalization, Firm Heterogeneity,  and  Wages: New Evidence from Matched  Employer–Employee Data" By Rod Ludema Georgetown University

  2. Question • Average wages at exporting firms rise relative to non-exporting firms in response to trade liberalization. Why? • Possibilities • Changes in returns to worker characteristics + differences in workforce composition between firms. • Differential changes in workforce composition • Efficiency wages • Rent-sharing • Matching

  3. Answer • The differential wage response goes away when one controls for worker-firm match effects. • Interpretation: export firms do not respond to liberalization by increasing (relative to non-export firms) the wages of existing workers. • Thus, differential must be due to compositional changes in either unobserved time-invariant  worker characteristics or match quality.

  4. Comments • Trade policy measures • Tariffs on output and ERP • What about ? • NTBs • Reciprocal tariff cuts • Preferential tariffs • Common external tariffs • What is going on with the real exchange rate? • It seems to be always significant, even with match effects.

  5. Stylistic Comments • If the answer is in the final regression, why all of the rest? • Repetition – methodology is explained in the intro, the methodology section and again in the results section. • Twenty pages before the first regression result.

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