Skip to main navigation menu Skip to main content Skip to site footer

Workers, Firms and Task Heterogeneity in International Trade Analysis: An Example of Wage Effects of Trade Within GVC

DOI:

https://doi.org/10.15678/EBER.2017.050201

Abstract

Objective: The main aim of this article is to present how the heterogeneity of workers, firms, and tasks can be incorporated into empirical international trade analysis. In particular, we provide an empirical example in which we aim to quantify the reliance on foreign value added (FVA) within Global Value Chains (GVC) on wages.

Research Design & Methods: We estimate a Mincerian wage model augmented with a measure of foreign value added drawn from international input-output data. We employ econometric modeling with instrumental variable (addressing the endogeneity between trade and wages) and estimated through weighted regression with cluster-robust standard errors.

Findings: Controlling for individual workers and job characteristics, we find the negative correlation between FVA and wages. The effect is conditional on the skill and task typology (affecting mostly workers performing routine tasks).

Implications & Recommendations: In empirical international trade analysis it is necessary to capture many dimensions of complexity observed in the real world. We argue that country- level or industry-level analysis on the international trade-wage nexus is not sufficient.

Contribution & Value Added: The originality of this work lies in studying wage-international trade interactions in a multicounty setting (which allows for some generality in the conclusions drawn), with the use of microdata which allows us to account for several aspects of heterogeneity. We contribute by providing an example of international trade-labour markets analysis which captures many dimensions of complexity observed in the real world: differences between workers, tasks they perform and firms in which they are employed.

Keywords

wage, worker heterogeneity, international trade, foreign value added, tasks

PDF

References

  1. Amiti, M., & Davis, D.R. (2012). Trade, firms, and wages: Theory and evidence. The Review of Economic Studies, 79(1), 1-36.
  2. Amador, J., & Cabral, S. (2016). Global Value Chains: A Survey of Drivers and Measures. Journal of Economic Surveys, 30(2), 278-301.
  3. Autor, D.H. (2013). The "task approach" to labor markets: an overview. Journal for Labour Market Research, 46(3), 185-199.
  4. Autor, D.H., & Dorn, D. (2013). The growth of low-skill service jobs and the polarization of the US labor market. The American Economic Review, 103(5), 1553-1597.
  5. Autor, D.H., Dorn, D., & Hanson, G.H. (2013). The China syndrome: Local labor market effects of import competition in the United States. The American Economic Review, 103(6), 2121-2168.
  6. Autor, D.H., Dorn, D., & Hanson, G.H. (2015). Untangling Trade and Technology: Evidence from Local Labour Markets. Economic Journal, 125(584), 621-646.
  7. Baldwin, R., & Robert-Nicoud, F. (2014). Trade-in-goods and trade-in-tasks: An integrating framework. Journal of International Economics, 92(1), 51-62.
  8. Baumgarten, D., Geishecker, I., & Görg, H. (2013). Offshoring, tasks, and the skill-wage pattern. European Economic Review, 61, 132-152.
  9. Becker, S.O., Ekholm, K., & Muendler, M.A. (2013). Offshoring and the onshore composition of tasks and skills. Journal of International Economics, 90(1), 91-106.
  10. Becker, S.O., & Muendler, M.A. (2015). Trade and tasks: an exploration over three decades in Germany. Economic Policy, 30(84), 589-641.
  11. Bernard, A., Jensen, J., Redding, S., & Schott, P. (2012). The Empirics of Firm Heterogeneity and International Trade. Annual Review of Economics, 4(1), 283-313.
  12. Blinder, A.S., & Krueger, A.B. (2013). Alternative Measures of Offshorability: A Survey Approach. Journal of Labor Economics, 31(2 Part 2), S97-S128.
  13. Cortes, G.M. (2016). Where Have the Middle-Wage Workers Gone? A Study of Polarization Using Panel Data. Journal of Labor Economics, 34(1), 63-105.
  14. Dauth, W., Findeisen, S., & Suedekum, J. (2014). The rise of the East and the Far East: German labor markets and trade integration. Journal of the European Economic Association, 12(6), 1643-1675.
  15. Ebenstein, A., Harrison, A., McMillan, M., & Phillips, S. (2014). Estimating the impact of trade and offshoring on American workers using the current population surveys. Review of Economics and Statistics, 96(4), 581-595.
  16. Ebenstein, A., Harrison, A., & McMillan, M. (2015). Why are American workers getting poorer? China, trade and offshoring (NBER Working Paper no. 21027). Cambridge: National Bureau of Economic Research.
  17. Feenstra, R.C. (2016). Advanced international trade: theory and evidence (2nd ed.). Princeton: Princeton University Press.
  18. Fortin, N., & Lemieux, T. (2016). Inequality and Changes in Task Prices: Within and between Occupation Effects. In L. Cappellari, S.W. Polachek & K. Tatsiramos (Eds.), Inequality: Causes and Consequences, (pp. 195-226). Bingley: Emerald Group Publishing Limited.
  19. Freeman, R.B. (1995). Are your wages set in Beijing?. The Journal of Economic Perspectives, 9(3), 15-32.
  20. Geishecker, I., & Görg, H., & Munch, J.R. (2010). Do labour market institutions matter? Micro-level wage effects of international outsourcing in three European countries. Review of World Economics, 146(1), 179-198.
  21. Geishecker, I., & Görg, H. (2013). Services offshoring and wages: Evidence from micro data. Oxford Economic Papers, 65(1), 124-146.
  22. Goos, M., Manning, A., & Salomons, A. (2014). Explaining job polarization: Routine-biased technological change and offshoring. The American Economic Review, 104(8), 2509-2526.
  23. Grossman, G.M., & Rossi-Hansberg, E. (2008). Trading tasks: A simple theory of offshoring. The American Economic Review, 98(5), 1978-1997.
  24. Grossman, G.M. (2013). Heterogeneous workers and international trade. Review of World Economics, 149(2), 211-245.
  25. Helpman, E., Melitz, M., & Rubinstein, Y. (2008). Estimating Trade Flows: Trading Partners and Trading Volumes. The Quarterly Journal of Economics, 123(2), 441-487.
  26. Harrison, A., & McMillan, M. (2011). Offshoring jobs? Multinationals and US manufacturing employment. Review of Economics and Statistics, 93(3), 857-875.
  27. Heckman, J.J., Lochner, L.J., & Todd, P.E. (2006). Earnings functions, rates of return and treatment effects: The Mincer equation and beyond. Handbook of the Economics of Education, 1, 307-458.
  28. Hummels, D., Jørgensen, R., Munch, J., & Xiang, C. (2014). The wage effects of offshoring: Evidence from Danish matched worker-firm data. The American Economic Review, 104(6), 1597-1629.
  29. Los, B., Timmer, M.P., & Vries, G.J. (2015). How global are global value chains? A new approach to measure international fragmentation. Journal of Regional Science, 55(1), 66-92.
  30. Marcolin, L., Miroudot, S., & Squicciarini, M. (2016). Routine jobs, employment and technological innovation in global value chains. OECD Science, Technology and Industry Working Papers, 1.
  31. Melitz, M.J. (2003). The impact of trade on intraâ€industry reallocations and aggregate industry productivity. Econometrica, 71(6), 1695-1725.
  32. Melitz, M.J., & Redding, S.J. (2014). Heterogeneous Firms and Trade. In G. Gopinath, E. Helpman & K. Rogoff (Eds.), Handbook of International Economics. North Holland.
  33. Olczyk, M., & Kordalska, A. (2016). Gross Export versus Export in Value Added: determinants and policy implications for manufacturing sectors in selected CEE countries. Eastern European Economics, doi:10.1080/00128775.2016.1254564
  34. Parteka, A., & Wolszczak-Derlacz, J. (2015). Integrated sectors-diversified earnings: the (missing) impact of offshoring on wages and wage convergence in the EU27. The Journal of Economic Inequality, 13(3), 325-350.
  35. Quast, B., & Kummritz, V. (2015). Decompr: Global Value Chain Decomposition in R (CTEI Working Papers, 1-17). Geneva: Center for the Trade and Economic Integration.
  36. Silva, J.M.C.S., & Tenreyro, S. (2006, November). The log of gravity. The Review of Economics and Statistics, 88, 641-658.
  37. Timmer, M.P., Dietzenbacher, E., Los, B., Stehrer, R., & Vries, G.J. (2015). An illustrated user guide to the world input-output database: the case of global automotive production. Review of International Economics, 23(3), 575-605.
  38. Yeaple, S.R. (2005). A simple model of firm heterogeneity, international trade, and wages. Journal of International Economics, 65(1), 1-20.
  39. Wagner, J. (2012). International trade and firm performance: a survey of empirical studies since 2006. Review of World Economics, 148(2), 235-267.
  40. Wang, Z., Wei, S.-J., & Zhu, K. (2013). Quantifying International Production Sharing At the Bilateral and Sector Levels (NBER Working Paper 19667). Cambridge: National Bureau of Economic Research.
  41. Wolszczak-Derlacz, J., & Parteka, A. (2016). The effects of offshoring to low-wage countries on domestic wages. A worldwide industrial analysis. Empirica. Journal of European Economics, doi: 10.1007/s10663-016-9352-4
  42. Wood, A. (1995). How trade hurt unskilled workers. The Journal of Economic Perspectives, 9(3), 57-80.

Downloads

Download data is not yet available.