Exporter Wage Premium Research Articles

An account of the exporter wage gap: Wage structure and composition effects across the wage distribution

AbstractGlobalisation is a prominent driver of wage inequality in advanced economies, and wage differentials paid by the exporter vis‐à‐vis domestically oriented firms play an unmistakable role. In this paper, we measure and decompose the exporter wage gap into several explanatory components by estimating counterfactual distributions for the Spanish economy between 2006 and 2014. To measure the exporter wage gap, an extended Mincer‐type wage equation is estimated along different points of the wage distribution using Unconditional Quantile Regression. Then, we apply the technique of Fortin, Lemieux and Firpo to decompose the exporter wage gap. We find that workers earn higher wages if they work in an exporting firm and that these differences are not constant across the wage distribution: they are greater for middle and middle‐high wages and narrower at the extremes of the distribution. Moreover, the exporter wage gap increased during and after the Great Recession. Characteristics, especially those related to firm and job heterogeneity, play an important role in explaining the gap, mainly in the upper part of the wage distribution. Though in the lower part, wage structure also plays an important role. With some variation across periods, there is a consistent pattern in which occupation, sector and firm size lead to an exporter wage premium resulting in a more unequal wage distribution. These factors are partially compensated by other factors, such as the collective bargaining system.

Exporting and the wage premium: The case of South African manufacturing firms

AbstractThere is much literature to support the view that exporters (both developed and developing countries) pay higher wages than nonexporters. While this so‐called export wage premium has also been found to be prevalent in South Africa, it has not been thoroughly researched, with studies to date having relied on cross‐sectional sample data rather than on the population of firms and workers. Using a newly constructed employer–employee matched panel data set on South African manufacturing firms, the study examined the factors contributing to the export wage premium in these firms—from firm, individual, and job characteristics (both observable and unobservable) to firms’ distribution of wages and export destinations (e.g., SACU‐only [Firms exporting only to Southern African Customs Union countries], Africa‐only [Firms exporting only to African countries], or international [Firms exporting to both African and non‐African countries]). One of the key findings was that the export wage premium is not about being labeled an exporter. It is, however, because of the “type of firm” (unobservable firm characteristics) exporters are, the “type of workers” (unobservable individual characteristics) they employ, and the “type of jobs” (unobservable job characteristics) they create. Policymakers should therefore be aware that simply expanding the pool of exporters will not necessarily give momentum to the export wage premium phenomenon. Rather, policy measures should be aimed at increasing firm‐level productivity.

The exporter wage premium when firms and workers are heterogeneous

Abstract In this paper, we develop a new model of international trade, in which workers featuring higher innate abilities match with firms featuring higher innate productivities. This model allows us to quantify the effect of trade on labour income inequality when workers have heterogeneous abilities within the broad groups of skilled and unskilled workers. Self-selection of the most productive firms into exporting generates an exporter wage premium, and our framework with skilled and unskilled workers allows us to decompose this premium into its skill-specific components. We employ linked employer-employee data from Germany to structurally estimate the parameters of the model. These parameter estimates imply an average exporter wage premium of 6 percent, with exporting firms paying no wage premium at all to their unskilled workers, while the premium for skilled workers is 15 percent. Measured by the Theil index, moving the economy to autarky would reduce wage inequality within the group of skilled workers by 29 percent, and it would reduce overall labour income inequality by 8 percent.

Export wage premium for south Brazilian firms: Interaction between export, human capital, and export destination

Abstract This paper looks for evidence of learning-by-exporting effects on firms’ average wages and its interaction with human capital level and export destination. This interaction allows us to test the hypothesis that a wage premium for exporting firms should mainly be found in firms employing high-skilled labor. The analysis is based on panel data for the 2010–2013 period and approximately 305,000 south Brazilian firms. We explore different times of entry into export market to use a fixed effects specification. Our results show that on average there are no learning-by-exporting effects on average wages for firms in our sample. However, when interacting firms export status with its human capital level, the effects turn out to be statistically significant. Finally, results suggest that the interaction between export gains and firms’ human capital level is driven by firms exporting to developing countries. We explain this last result by the following mechanism. Low wage countries mainly produce low quality goods. Therefore, firms employing high skilled labor can differentiate their products and consequently escape from intense competition from these countries in the foreign market, obtaining higher export gains.

Exporter Wage Premium: A Plant-Level Analysis with Canadian Linked Employer-Employee Data

Export promotion policy is often employed by governments to spur economic growth. This paper uses Canadian linked employer-employee (LEE) data to examine the impact of exports on plant average wage. I find that the wage increases significantly three years after a plant enters export markets. Unlike the skill-upgrading mechanism for developing countries, the most plausible explanation for the effect in Canada, a small developed country, is that more intense competition in export markets leads to changes in returns to skills. This paper is the first study to empirically identify in a developed county the causal effect of exports on wage increase using LEE data, and the first to explore the underlying changes-in-returns-to-skills mechanism.

Examining the Export Wage Premium in Developing Countries

AbstractThere are arguably potential wage gains from exports in developing countries. Export markets bring about opportunities for firms and successful exporting firms translate some of the benefits of exports to workers via employment and wage premia. Using comparable data for 61 developing and low‐income countries, we document the prevalence of the export wage premia worldwide. With an extensive literature review, we identify four major drivers of the wage premia: exporting firms hire more skilled workers, utilize more sophisticated machines, buy higher quality material inputs and are more productive than non‐exporting firms. Our empirical analysis confirms the worldwide prevalence of these mechanisms and, furthermore, establishes a strong link to the estimated wage premia.

The Skill Structure of Export Wage Premium: Evidence from Chinese Matched Employer–Employee Data

AbstractWe study how the wage gap between exporting and non‐exporting firms (export wage premium) differs across skill groups, using unique matched employer–employee data from China. We find robust evidence that exporters pay relatively higher wages than non‐exporters to more educated workers. The differences in export wage premium across education groups are sizable. Further investigations show that the positive correlation between export wage premium and education is more pronounced in sectors with higher scope for quality differentiation. This is consistent with the theory that exporters produce relatively higher quality goods which require relatively higher quality skilled workers.

The Exporter Wage Premium Reconsidered—Destinations, Distances and Linked Employer–Employee Data

AbstractThis study uses detailed, reliable and up‐to‐date linked employer–employee data that take account of both the demand and the supply side of the labor market to challenge the conventional wisdom of a universal exporter wage premium. It investigates whether for German establishments an exporter wage premium can be found irrespective of export destination and the distance between export origin and destination. As expected, it finds that exporters generally pay higher wages than non‐exporters, but it also shows that only exporting to certain countries is associated with a wage premium. Moreover, such a premium exists only for establishments that ship goods over a relatively long distance.

Exporters and wage inequality during the Great Recession—Evidence from Germany

We show that the exporter wage premium decreased at the dawn of the Great Recession and stagnated afterwards. Our decomposition suggests that the decline of the premium explains 24%–43% of the decrease in residual wage inequality between 2007 and 2008.

Selection into Trade and Wage Inequality

This paper analyzes how intra-industry trade affects the wage distribution when both workers and firms are heterogeneous. Positive assortative matching between worker skill and firm technology generates an employer size-wage premium and an exporter wage premium. Fixed export costs cause the selection of advanced technology, high-skill firms into exporting, and trade shifts the firm technology distribution upwards. Consequently, trade increases skill demand and wage inequality in all countries, both on aggregate and within the upper tail of the wage distribution. This holds when firms receive random technology draws and when technology depends on firm-level R&D. (JEL F16, J23, J24, J31)

International Trade and Collective Bargaining Outcomes: Evidence from German Employer–Employee Data

AbstractIn theoretical trade models with variable mark‐ups and collective wage bargaining, exposure to international markets might reduce the exporter wage premium. We test this prediction using linked German employer–employee data covering the years 1996–2007. To separate the rent‐sharing mechanism from assortative matching, we exploit individual worker information to construct profitability measures that are free of skill composition. Our results show that rent‐sharing is less pronounced in more export‐intensive firms or in more open industries. The exporter wage premium is highest for low‐productivity firms. In line with theory, these findings are unique to the subsample of plants covered by collective bargaining.

Trade, wages, and profits

This paper formulates a structural empirical model of heterogeneous firms whose workers exhibit fair-wage preferences, leading to a link between a firm's operating profits and wages of workers employed by this firm. We estimate the parameters of the model in a dataset of five European economies. The model predicts an exporter wage premium, which we find to be sizable in all countries, with nearly 6% on average. The estimates enable us to conduct counterfactual exercises. We find that openness to international trade has quantitatively important effects, leading to higher wage inequality and lower aggregate employment.

Exports and Wages: Rent Sharing, Workforce Composition or Returns to Skills?

We use linked employer-employee data from Italy to explore the relationship between exports and wages. Our empirical strategy exploits the 1992 devaluation of the Italian Lira, which represented a large and unforeseen shock to Italian firms' incentives to export. The results indicate that the export wage premium is due to exporting firms both (1) paying a wage premium above what their workers would earn in the outside labor market – the rent-sharing effect, and (2) employing workers whose skills command a higher price after the devaluation – the skill composition effect. The latter effect only emerges once we allow for the value of individual skills to differ in the pre- and post-devaluation periods. In fact, using a fixed measure of skills, as typically done in the literature, we would attribute the wage increase only to rent sharing. We also document that the export wage premium is larger for workers with more export-related experience. This indicates that the devaluation increased the demand for skills more useful for exporting, driving their relative price up.

Exports and Wages: Rent Sharing, Workforce Composition, or Returns to Skills?

We use linked employer-employee data from Italy to explore the relationship between exports and wages. Exploiting the 1992 devaluation of the lira, we show that exporting firms both pay a wage premium above what their workers would earn in the outside labor market (the “rent-sharing” effect) and employ workers whose skills command a higher price after the devaluation (the “skill composition” effect). The latter only emerges once we allow for the value of workers’ skills to differ in the pre- and post-devaluation periods. We also document that the export wage premium is larger for workers with more export-related experience.

Do exporters pay fair-wage premiums?

Egger et al. (2011) propose a structural estimation of the exporter wage premium employing a Melitz-trade model with rent sharing due to fair-wage concerns. Our alternative identification strategy, based upon voluntary payments above the agreed wage floor for employers subject to collective agreements, confirms their results.

Exporters and the rise in wage inequality: Evidence from German linked employer–employee data

Using a linked employer–employee data set of the German manufacturing sector, this paper analyses the role of exporting establishments in explaining rising wage dispersion both within and between skill groups in the time period 1996 to 2007. A decomposition analysis shows that the strong increase in the exporter wage gap, conditional on workers' skill levels, contributed to the growth in wage inequality, whereas the increase in the exporters' share in total employment worked towards a reduction in wage dispersion. The resulting net contribution is positive (inequality-increasing) but moderate. These findings are consistent with recent heterogeneous-firm trade models that feature an exporter wage premium as well as variability of the premium with respect to increasing trade liberalisation.

Export wage premium in China's manufacturing sector: A firm level analysis

This paper investigates whether exporting firms in Chinese manufacturing sector pay higher average wages than non-exporting firms by analyzing a large firm-level dataset derived from the Chinese Enterprise Census in 2004. Through rigorous exercises involving robust regressions, quantile regressions and nonparametric matching methods, we find that the wage premium of exporting activities is not a prevailing phenomenon in China. It is related to the heterogeneous characteristics of the firms such as ownership, export-orientation and locations. Overall, exporters located in coastal regions but Guangdong province are more likely to pay higher average wages than nonexporters, while those producing in Guangdong on average offer a lower pay.

Exports and Wages: Rent Sharing, Workforce Composition or Returns to Skills?

We use linked employer-employee data from Italy to explore the relationship between exports and wages. Our empirical strategy exploits the 1992 devaluation of the Italian Lira, which represented a large and unforeseen shock to Italian firms’ incentives to export. The results indicate that the export wage premium is due to exporting firms both (1) paying a wage premium above what their workers would earn in the outside labor market – the “rent-sharing” effect, and (2) employing workers whose skills com- mand a higher price after the devaluation – the “skill composition” effect. The latter effect only emerges once we allow for the value of individual skills to differ in the pre- and post-devaluation periods. In fact, using a fixed measure of skills, as typically done in the literature, we would attribute the wage increase only to rent sharing. We also document that the export wage premium is larger for workers with more export-related experience. This indicates that the devaluation increased the demand for skills more useful for exporting, driving their relative price up.

The Exporter Wage Premium Reconsidered: Destinations, Distances and Linked Employer-Employee Data

This study uses detailed, reliable and up-to-date linked employer-employee data that take account of both the demand and the supply side of the labor market to challenge the conventional wisdom of a universal exporter wage premium. It investigates whether for German establishments an exporter wage premium can be found irrespective of export destination and the distance between export origin and destination. As expected, it finds that exporters generally pay higher wages than non-exporters. But it also shows that only exporting to certain countries is associated with a wage premium. Moreover, such a premium exists only for establishments that ship goods over a relatively long distance.

Exporters and the Rise in Wage Inequality – Evidence from German Linked Employer-Employee Data

Using a linked employer-employee data set of the German manufacturing sector, this paper analyses the role of exporting establishments in explaining rising wage dispersion. Over the period of analysis (1996-2007), the raw wage differential between exporters and domestic establishments increased substantially, which can only partly be attributed to corresponding changes in human capital endowments and the returns to them. These findings are consistent with recent heterogeneous-firm trade models that feature an exporter wage premium as well as variability of the premium with respect to increasing trade liberalization. A decomposition analysis shows that the increase in the conditional wage gap indeed contributed to rising wage inequality both within and between skill groups. In contrast, the growing employment share of exporters contributed to a reduction in wage dispersion.