Trade, skill premium and the gender wage gap : evidence from manufacturing industries

Abstract

In the past decade, there have been many debates about globalization and its effects on economic, political and social aspects. In this regard, different countries have tried to lead to integration through trade agreements. These trade agreements have affected the structure of countries. On the other hand, the wage gap and wage inequality have created many challenges. Therefore, the paper assesses the impact of trade liberalization on the labour market by focusing on skill wage premiums. The paper tests these effects by developing a monopolistic competition model with two factors of production characterized by their skill levels (skilled and unskilled labour). The paper finds that tariff level reductions cause a moderate increase in the wage gap. Thus, our analysis shows that a 10% decrease in tariffs is accompanied by a 16.1 % increase in the skill premium. Also, the same level of tariff cut will on average increase the gender wage gap by 26.8%. The study implies that trade liberalization tends to benefit more workers in the skilled labour market compared to workers in the unskilled labour market.