Engines of the Skill Premium in the Portuguese Economy

Abstract

The explanation of the recent increase in intra-country wage inequality in favour of skilled labour has been dominated by two explanations: skill-biased technological change and international trade liberalization. Few empirical studies have tried to assess both explanations across a comprehensive sample of sectors for individual countries. Thus, we analyse the impact of both explanations and add some new variables within a unified framework that isolates 18 sectors of the Portuguese economy for the period 2007–2017. In particular, results show that the exports, imports, and the relative supply of skilled workers present a negative impact on the Portuguese sectoral wage skill premium (IWSP), thus reducing wage inequality, whereas revenues and foreign direct investment positively affect the Portuguese IWSP. Also, we observe that the international trade is far more important than the technological progress, to reduce the wage gap between skilled and unskilled workers.