Introduction
The relationship between trade openness and wage inequality, particularly concerning medium-skilled wages, has been a subject of extensive research. This synthesis aims to consolidate findings from multiple studies to determine whether trade openness positively affects medium-skilled wages.
Key Insights
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Positive Impact on Medium-Skilled Wages:
- Trade openness, through tariff concessions, reduces domestic prices and raises the wages of medium-skilled workers while decreasing the wages of low-skilled workers.
- In developing countries, trade liberalization can lead to an increase in the wages of medium-skilled workers if the proportion of skilled workers in less complex sectors is higher.
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Increase in Wage Inequality:
- Trade openness tends to increase wage inequality by favoring skilled labor over unskilled labor, leading to a higher skill premium .
- The impact of trade on wage inequality is also influenced by technological-knowledge diffusion, which tends to benefit skilled labor more, thereby increasing wage inequality .
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Sector-Specific Effects:
- In the tourism industry, trade openness increases wage inequality, benefiting semi-skilled and highly skilled workers at the expense of unskilled workers.
- In the traded sector of developing countries, trade liberalization has been shown to increase the marginal returns to college education, indirectly benefiting medium-skilled workers.
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Mixed Effects in Developing Countries:
- The effects of trade openness on wage inequality in developing countries are uncertain due to opposing forces: an increase in the relative price of less-skilled labor-intensive products and knowledge spillovers that widen the skill premium gap.
- The impact of trade liberalization on wage inequality in developing countries depends on the level of skill mismatch and the proportion of skilled workers in less complex sectors.
Conclusion
Trade openness generally has a positive effect on medium-skilled wages, particularly through mechanisms like tariff concessions and increased demand for skilled labor. However, it also tends to increase overall wage inequality by favoring skilled over unskilled labor. The specific impact can vary depending on the sector and the level of skill mismatch within the labor market.