Today, the theoretical framework has expanded to include also other economic effects and pressures. There is wide agreement that the general trend
towards skill-premium increase has been driven by
an increase in the demand for skilled workers.
The diffusion of technology through trade and
foreign investment binds innovation and globalization together in a single process. The balance depends
on country characteristics and degree of openness.
Indeed, a series of recent contributions have focused
on skill-bias technological change itself as an endogenous response to trade liberalization. For instance,
Attanasio, Goldberg and Pavnik (2004) show that, during 1984 to 1998, the increase in the demand for skilled
workers in Colombia was largest in those sectors that
experienced the largest tariff cuts.
In recent decades, one model has influenced most of the thinking on the distributional effects of trade openness. 10 The
model predicts that trade liberalization in a country
with relative abundance of unskilled labor should
produce an increase in the price of the unskilled,
labor-intensive products. This occurs as the country
develops a specialization in these products according
to its comparative advantage, increasing the wages of
Experience has led to some interesting conclusions concerning the effect of trade liberalization
on increasing the gap between skilled and unskilled
labor. Wood (1999) compares the increasing skills gap
in Latin America with the earlier experience of East
Asia, where liberalization was accompanied by a narrowing of the gap. Wood argues that in the 1960s and
1970s middle-income countries had a comparative
advantage in low-skill-intensity products. Therefore
opening up in East Asia benefited primarily low-skill
workers. However, the entry of large-labor abundant
countries into world markets (especially China) in
the 1980s and 1990s meant that Latin America’s comparative advantage had shifted to products of intermediate skill-intensity.
This would explain why greater openness
in these countries did not necessarily benefit the low-skilled and therefore poorer
workers. Also, Latin America did not experience the
vast expansion of basic education recorded in East
Asia while it was opening up. Latin America’s exports
were dominated by natural resources, and imports
were the main beneficiaries of liberalization while
East Asia had a two track trade policy which included providing incentives to exporters while maintaining some protection for domestic industry.
Feenstra and Hanson (1996, 1997, 1999, 2003) abandon the assumption of most trade models that all trade
occurs in final goods. They look at the rapid expansion
of trade in intermediate goods linked to “outsourcing”
or “global production sharing” and the connection to
wage differentials. The assumption is that outsourcing in developing countries mostly involves medium
or high-skilled workers, thus increasing the average
skill intensity of production within sectors and therefore the skill premium. They find strong support for
this hypothesis in Mexico, linked to the large foreign
direct investment (FDI) flows in this country. Similar
skill-bias of outsourcing is found by Robbins and Grindling (1999) in Costa Rica.
Globalization vs. Job Security What Current researCh says
Does liberalization raise wages? yes + no The wage effects of trade reform tend to be small. Wages in
exports, including export free zones, tend to be higher than in similar
activities in rest of economy.
Does liberalization raise employment? yes + no Employment effects of trade have differed widely across
countries and depend on a large number of country-specific factors,
including local labor laws.
Does adjustment favor skilled workers? yes In developed countries skill-biased technological change improves
the chance that more skilled workers will benefit.