Trade and Workers: Evidence from the Philippines

Abstract

This paper combines labor force survey data with trade and production data from 1988 to 1997 to examine the impact of trade on wages and employment in the Philippines’s manufacturing sector. In contrast to findings typically reported for Latin American countries, data indicate that wage inequality in the manufacturing sector declined over a period in which trade liberalization was undertaken. This was despite the fact that reductions in tariff rates were largest in less skill-intensive manufacturing industries. There was also an absence of any secular rise in returns to higher education. Tariff reductions were associated with declines in industry wage premiums in capital-intensive industries. Moreover, these declines were largest for skilled workers. Tariff reductions have had an insignificant effect on both employment as well as average hours of work of full-time employees across industries. These findings are consistent with a scenario where workers in capital-intensive industries, especially the more skilled ones, earned rents prior to trade liberalization, which may have eroded these.