Trade and Labor Markets: Evidence from The Colombian Trade Liberalization Process

The objective of this paper is to measure the impact of trade on the sectoral labor markets. Using the Colombian National Household Survey and comparable trade-related data, we study how changes in trade policy affect the sectoral demands for labor, as measured by the change in wages and employment. We develop a structural model and estimate its reduced form specification to determine an elasticity between measures of sectoral tariffs and labor demand, correcting for tariff endogeneity. The data used covers the period of 1984 through 1999. This allows us to take advantage of the natural experiment represented by the Colombian trade liberalization process of the early nineties. The results suggest that sector tariff levels over the period are positively correlated with their employment levels, but only for tradable sectors. In the case of wages, there is no evidence that they were affected by the trade reform.

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