wage inequality and trade liberalization in mps: evidence for morocco by silvia muzi

WAGE INEQUALITY AND TRADE LIBERALIZATION IN MPs:

EVIDENCE FOR MOROCCObyby

Silvia Muzi Silvia Muzi

INTERNATIONAL CONFERENCEINTERNATIONAL CONFERENCE““Bridging the gap: the role of trade and FDI in the Mediterranean”Bridging the gap: the role of trade and FDI in the Mediterranean”

Naples, 8 June 2006Naples, 8 June 2006

Trade liberalization and wages: related Trade liberalization and wages: related

theoretical and empirical literaturetheoretical and empirical literature

Relevance of extending the analysis to the MPs: Relevance of extending the analysis to the MPs:

evidence for Moroccoevidence for Morocco

Objectives of the empirical analysis Objectives of the empirical analysis

Empirical framework and empirical results Empirical framework and empirical results

ConclusionsConclusions

S. Muzi - University of Rome “La Sapienza” and IPALMO

Structure of the Presentation…Structure of the Presentation…

The analytical framework for the analysis is offered by the The analytical framework for the analysis is offered by the

emerging literature on the role of emerging literature on the role of inter-industry wage premiums inter-industry wage premiums

(Dickens and Katz, 1987; Krueger and Summers, 1988; Katz et (Dickens and Katz, 1987; Krueger and Summers, 1988; Katz et

al., 1989)al., 1989)

Industry wage premiums are defined as the Industry wage premiums are defined as the portion of individual portion of individual

wageswages that cannot be explained by worker, firm, or job that cannot be explained by worker, firm, or job

characteristics, but can characteristics, but can only be explained by the worker’s industry only be explained by the worker’s industry

affiliationaffiliation (Krueger and Summers, 1988) (Krueger and Summers, 1988)

The role of wage premiums seems to be particularly relevant in The role of wage premiums seems to be particularly relevant in

predicting the impact of trade reforms in predicting the impact of trade reforms in short and medium-run short and medium-run

models of trademodels of trade and in and in trade models with imperfect competitiontrade models with imperfect competition

Literature on Literature on trade liberalization and productivitytrade liberalization and productivity is also relevant. is also relevant.

There is also strong evidence that reduction in trade protection There is also strong evidence that reduction in trade protection

results in productivity improvement (Roberts and Tybout, 1997). results in productivity improvement (Roberts and Tybout, 1997).

Changes in productivity might, then, impact on the labor market Changes in productivity might, then, impact on the labor market

Trade liberalization and wages: Trade liberalization and wages: the theoretical literaturethe theoretical literature


The relationship between industry wage premiums and trade The relationship between industry wage premiums and trade

liberalization has been firstly analyzed by liberalization has been firstly analyzed by Gaston e TreflerGaston e Trefler (1997) (1997)

in the specific case of in the specific case of United StatesUnited States

The analysis has then been extended to developing countries with The analysis has then been extended to developing countries with

a focus on the a focus on the Latin American experienceLatin American experience. Pavcnik et al. (2004) . Pavcnik et al. (2004)

studied the case of Brazil; Feliciano (2001) the Mexican studied the case of Brazil; Feliciano (2001) the Mexican

experience; Goldberg e Pavcnik (2005) the effects of the Colombian experience; Goldberg e Pavcnik (2005) the effects of the Colombian

trade liberalizationtrade liberalization

At present, the focus is moving towards other geographical At present, the focus is moving towards other geographical

regions: regions: AsiaAsia (Mishra e Kumar, 2005 for India) and (Mishra e Kumar, 2005 for India) and Eastern EuropeEastern Europe

(Goh e Javorcik, 2005 for Poland)(Goh e Javorcik, 2005 for Poland)

The The evidenceevidence emerging from these empirical investigations emerging from these empirical investigations is is

mixed.mixed.

Trade liberalization and wages: Trade liberalization and wages: the empirical literaturethe empirical literature



theoretical and empirical literature theoretical and empirical literature




Empirical framework and empirical results Empirical framework and empirical results




Why MPs? …Why MPs? …


Labor market related issues are crucial for MPs that Labor market related issues are crucial for MPs that need to need to

increase employmentincrease employment amongst an active population growing really amongst an active population growing really

fast fast

(35 million of new jobs have to be created in the MPs, between (35 million of new jobs have to be created in the MPs, between

2000 2000 and 2015, in order to maintain unemployment at current levels) and 2015, in order to maintain unemployment at current levels)

Within this context the Within this context the EU-Med FTA is a relevant toolEU-Med FTA is a relevant tool to support to support

Southern Mediterranean countries in dealing with this challenge as Southern Mediterranean countries in dealing with this challenge as

well as with other very important ones such as the need of: well as with other very important ones such as the need of:

shifting from public sector dominated to private-sector driven shifting from public sector dominated to private-sector driven

economy; economy;

moving from a closed and passive international role to a more moving from a closed and passive international role to a more

open and active one; open and active one;

overcoming an international specialization model volatile and overcoming an international specialization model volatile and

dominated by oil or by a low degree of diversification to more dominated by oil or by a low degree of diversification to more

stable and diversified onestable and diversified one

Why Morocco?...Why Morocco?...


During the ’90s Morocco not only strongly confirmed the During the ’90s Morocco not only strongly confirmed the process of process of

trade liberalizationtrade liberalization started in the previous decade but was also started in the previous decade but was also

characterized by an characterized by an impressingimpressing magnitudemagnitude in the degree of tariffs in the degree of tariffs

reduction reduction (Femise, 2005)(Femise, 2005)

Morocco is, with Tunisia, Morocco is, with Tunisia, the most advanced countrythe most advanced country in the in the

implementation of the implementation of the Euro-Mediterranean AgreementEuro-Mediterranean Agreement. It is also a . It is also a

country with country with little natural resourceslittle natural resources and a and a big and increasing labor big and increasing labor

forceforce

Stylized Facts: a quick picture of Stylized Facts: a quick picture of Moroccan trade liberalization during Moroccan trade liberalization during

the ’90sthe ’90s


Tariffs YearSimple average

Standard deviation

All industries1993 53.9 28.01997 19.3 13.4

Manufacturing1993 69.2 17.01997 25.0 12.8

Trade openness [(X+M)/ GDP ] 1991 1993 1997 1998

All industries53.8 53.1 60.3 59.7

Stylized Facts: a quick picture of Stylized Facts: a quick picture of Moroccan trade liberalization during Moroccan trade liberalization during

the ’90sthe ’90s

11

12

13

2123

29

31

3233

34

35

36

3738

39

41

020

4060

8010

0T

ariff

s 19

97

0 20 40 60 80 100Tariffs 1993






Objectives of the empirical analysisObjectives of the empirical analysis

Empirical framework and results Empirical framework and results




Objectives of the analysis Objectives of the analysis


Analyzing the structure and evolution of wages Analyzing the structure and evolution of wages

in Morocco before and after the process of in Morocco before and after the process of

trade liberalization implemented during the trade liberalization implemented during the

‘90s‘90s

Inequality analysisInequality analysis focused on the focused on the overall distributionoverall distribution as as

well as on specific well as on specific sub-groupssub-groups of the population of the population

(male/female workers; educational or industry related (male/female workers; educational or industry related

groups)groups)

Investigating the relationship between trade Investigating the relationship between trade

liberalization and changes in wage structureliberalization and changes in wage structure

Focus on the Focus on the role of industry affiliationrole of industry affiliation and on the and on the

specific impact of trade liberalization on specific impact of trade liberalization on unskilled unskilled

workers’ wagesworkers’ wages






Empirical framework and empirical resultsEmpirical framework and empirical results




DATA DATA


WAGESWAGES

The analysis is based on two The analysis is based on two Living Standards Measurement Living Standards Measurement

StudyStudy (LSMS) household surveys conducted by the Moroccan (LSMS) household surveys conducted by the Moroccan

Direction of Statistics in 1990/91 and 1998/99.Direction of Statistics in 1990/91 and 1998/99.

The 1990/1991 survey provides data for a sample of over 3,000 The 1990/1991 survey provides data for a sample of over 3,000

households and about 20,000 individuals, while the sample for households and about 20,000 individuals, while the sample for

1998/1999 survey is of more than 5,000 households and 30,000 1998/1999 survey is of more than 5,000 households and 30,000

individuals.individuals.

The individual-level sample used has been The individual-level sample used has been restrictedrestricted to to

thosethose male and woman in male and woman in wage employmentwage employment and and aged aged

between 15 and 70 yearsbetween 15 and 70 years old. The sample was, therefore, old. The sample was, therefore,

restricted to about 1.700 and 3.900 individuals, restricted to about 1.700 and 3.900 individuals,

respectively, in 1990/1991 and 1998/1999respectively, in 1990/1991 and 1998/1999

The wage distribution has, then, been trimmed by 0.1% The wage distribution has, then, been trimmed by 0.1%

at the top and bottom tailsat the top and bottom tails

DATA DATA


TRADETRADE

Data on Data on international tradeinternational trade are from the United Nations are from the United Nations

Commodity Trade Statistics Database (Commodity Trade Statistics Database (UN-COMTRADEUN-COMTRADE) )

For matching data on trade with data from the For matching data on trade with data from the

LSMS, the ISIC rev2 classification at the 2 digit LSMS, the ISIC rev2 classification at the 2 digit

desegregation level has been considereddesegregation level has been considered

Data on Data on tariffstariffs are from are from UNCTAD-TRAINSUNCTAD-TRAINS (Trade Analysis (Trade Analysis

and Information System), a comprehensive computerized and Information System), a comprehensive computerized

information system covering tariff, para-tariff and non-information system covering tariff, para-tariff and non-

tariff measures as well as import flows by origin for more tariff measures as well as import flows by origin for more

than 140 countries.than 140 countries.

The dynamic of wage distribution has been The dynamic of wage distribution has been

analyzed using a number of inequality measures analyzed using a number of inequality measures

which differ in their sensitivity to wage which differ in their sensitivity to wage

differences in different parts of wage distribution. differences in different parts of wage distribution.

They include:They include:percentile ratios, percentile ratios,

the Gini coefficient, the Gini coefficient,

three Generalized Entropy measures (the mean log deviation three Generalized Entropy measures (the mean log deviation

(MLD), the Theil index and half the squared coefficient of (MLD), the Theil index and half the squared coefficient of

variation) variation)

Inequality analysis: Inequality analysis: the empirical frameworkthe empirical framework


Inequality: empirical results….Inequality: empirical results….


0.2

.4.6

.8kd

ensi

ty

0 1 2 3 4log of real hourly w age

1990/1991 1998/1999

- Kernel density plot for wages 1990/1991 and 1998/1999

Inequality: empirical Inequality: empirical resultsresults

1990-91 1998-99 1990-91 1998-99 1990-91 1998-99

Mean real hourly wage (dirham) 6.63 5.92 5.13 4.61 6.33 5.61

(5.14) (3.88) (4.62) (3.58) (5.08) (3.85)

Median real hourly wage (dirham) 5.00 4.73 3.12 3.55 4.81 4.73

Population share (%) 80.15 76.01 19.85 23.99 … …

Income share (%) 84.67 80.56 15.33 19.44 … …

Mean wage by education

No school 4.50 4.64 2.42 2.76 4.07 4.14

Completed primary school 7.11 5.32 6.15 4.19 6.96 5.11

Completed secondary school 11.66 9.47 9.90 7.86 11.10 8.99

Completed graduate school 19.04 12.39 14.80 10.26 18.05 11.72

Ratio graduate/ no school 4.23 2.67 6.12 3.72 4.43 2.83

Wage inequality measures

Inter-quantile range (90/ 10) 6.111 5.200 12.500 7.714 7.714 6.000



Gini coefficient 0.383 0.344 0.468 0.404 0.402 0.361

Mean Log Deviation, GE(0) 0.255 0.210 0.415 0.290 0.292 0.235

Theil index, GE(1) 0.246 0.193 0.358 0.264 0.269 0.213

Half squared coeff. variazione, GE(2) 0.300 0.215 0.405 0.301 0.321 0.236

Sample size 1,438 3,206 356 1,012 1,794 4,218

Male workers Female workers Overall distribution

……Inequality: empirical resultsInequality: empirical results

Educational level GE(0) GE(1) GE(2) GE(0) GE(1) GE(2)

Overall wage inequality 0.2919 0.2689 0.3212 0.2345 0.2126 0.2362Within-group 0.193 0.1571 0.1824 0.1800 0.1511 0.1639 Contribution (%) 66.15 58.42 56.82 76.76 71.07 69.43Between-group 0.0988 0.1118 0.1387 0.0545 0.0615 0.0722 Contribution (%) 33.85 41.58 43.18 23.24 28.93 30.57

Industry group

Overall wage inequality 0.2919 0.2689 0.3212 0.2345 0.2126 0.2362Within-group 0.193 0.1727 0.2196 0.1608 0.1479 0.176 Contribution (%) 67.52 65.34 69.74 84.01 81.75 82.43Between-group 0.0948 0.0932 0.0972 0.0375 0.0388 0.0415 Contribution (%) 32.48 34.66 30.26 15.99 18.25 17.57

Note: figures in parentheses are the contribution (%) of each component to overall inequality

1990/ 1991 1998/ 1999

Trade and wages: methodologyTrade and wages: methodology


The impact of trade liberalization on wages has been The impact of trade liberalization on wages has been

assessed assessed

by applying a two stage model by applying a two stage model

by verifying the findings of this model throughout the by verifying the findings of this model throughout the

estimation of a pooled equationestimation of a pooled equation Two stage modelTwo stage model

First stage. Estimation of two separate Augmented First stage. Estimation of two separate Augmented

Mincerian wage equations. The specification is the Mincerian wage equations. The specification is the

following:following:

Second stage.Second stage. The coefficient on the industry dummy (wpThe coefficient on the industry dummy (wpjj) )

are pooled and regressed on tariffs and other trade-related are pooled and regressed on tariffs and other trade-related

variables. The following WLS regression model has been variables. The following WLS regression model has been

estimatedestimated

itjijijij wpIXw ln

jttjtjt uCwp

Trade and wages: Trade and wages: methodologymethodology


Pooled equation modelPooled equation model

The small size of the sample available in the second stage The small size of the sample available in the second stage

of the analysis ask for of the analysis ask for checking the robustness of the checking the robustness of the

resultsresults of the analysis of the analysis

A reduced form model for all the individuals of age 15-70, A reduced form model for all the individuals of age 15-70,

employed in the manufacturing and electricity sectors has employed in the manufacturing and electricity sectors has

been estimated by pooling all workers from the 1990/1991 been estimated by pooling all workers from the 1990/1991

and 1998/1999 LSMS. and 1998/1999 LSMS.

The specification is the following:The specification is the following:

itjijijij wpIXw ln

itjtitit tariffsXw ln

Trade and Trade and wages: wages: empirical empirical resultsresultsTwo stage modelTwo stage model

1991 1998

Age 0.0608343*** 0.0583328***0.0071 0.0043

Age squared -0.000678*** -0.000630***0.0001 0.0000

Male 0.186364*** 0.170224***0.0326 0.0219

Married 0.138536*** 0.132429***0.0316 0.0215

Completed primary school 0.3314814*** 0.1551023***0.0337 0.0193

Completed secondary school 0.6764994*** 0.4104896***0.0559 0.0315

Completed graduate school 1.173014*** 0.6675445***0.0591 0.0419

Personnel -0.1165125** -0.3609998***0.0553 0.0371

Sales -0.1896787*** -0.4063088***0.0551 0.0635

Agricultural Worker -0.2106418*** -0.4939055***0.0737 0.0655

NoAgricultural Worker -0.2167754*** -0.4378102***0.0529 0.0404

Private Employee not agricultural (% ) -0.2250592** -0.2536728***0.0482 0.0376

Agricultural Employee (% ) -0.2592648*** -0.4293849***0.0654 0.0872

Impresa privata familiare -0.3675561*** -0.52771***0.0781 0.0616

Other -0.4115139** -0.5130424***0.1182 0.0641

Dummy Industria SI SI

Adjusted R-squared 0.5563 0.5226

Sample size 1,620 3,968

Log of the real hourly wage

Trade and wages: empirical resultsTrade and wages: empirical results

Wage premiums and tariffs reductionWage premiums and tariffs reduction

11

13

21

23

31

32

33

34

3536

37

38

39

40

.2.4

.6.8

1W

ag

e p

rem

ia 1

99

1

0 .2 .4 .6 .8 1Tariffe medie 1991

11

13

21

23

3132

33

3435

36

37

38

39

40

.2.4

.6.8

1W

ag

e p

rem

ia 1

99

8

0 .2 .4 .6 .8 1Tariffe medie 1998

Trade and wages: empirical resultsTrade and wages: empirical results

Dependent variable

(1) (2)

Simple average tariffs -0,3386* -0,4820**0.18805 0.19501

Lagged exports 0,1942**0.07839

Lagged imports -0,00820.06789

Constant 1,8869*** -0,07830.21843 1.02410

R-squared 0.1108 0.3499

Sample size 28 28

Inter-industry wage premiums

Trade and wages: Trade and wages: empirical resultsempirical results

Pooled equation modelPooled equation model

Dependent variable

Simple average tariffs -0.20811** -0.25889***0.0948 0.0982

Age 0.05301*** 0.05179***0.0061 0.0061

Age squared -0.00054*** -0.00053***0.0001 0.0001

Male 0.24279*** 0.25071***0.0312 0.0328

Completed primary school 0.17667*** 0.17289***0.0295 0.0297

Completed secondary school 0.35907***0.0564

Completed graduate school 0.79561***0.1085

Sales -0.37560*** -0.33786**0.1180 0.1400

Agricultural Worker -0.45693*** -0.40432***0.0676 0.0843

NoAgricultural Worker -0.39099*** -0.32172***0.0611 0.0801

Private Employee not agricultural (% )-0.19900*** -0.24080***0.0525 0.0607

Agricultural Employee (% ) -0.37077*** -0.40677***0.0600 0.0645

Private HH Employee -0.60847*** -0.62165***0.1400 0.1459

Other -1.11278*** -1.15017***0.2145 0.2161

Industry dummies Yes Yes

R-squared 0.3932 0.2967

Sample size 1,989 1,842

Log of the real hourly wage

Conclusions…Conclusions… The paper offered a contribution to the analysis on the effect of The paper offered a contribution to the analysis on the effect of

trade liberalization on MPs focusing on trade liberalization on MPs focusing on the impact of Moroccan the impact of Moroccan trade reforms on wagestrade reforms on wages

It showed a It showed a decrease in wage inequalitydecrease in wage inequality during the ’90 both for during the ’90 both for the overall distribution and for the sub-groups of male and the overall distribution and for the sub-groups of male and female. Despite this common trend, wage dispersion is still female. Despite this common trend, wage dispersion is still higher for women at work compared to menhigher for women at work compared to men

The The major proportionmajor proportion of wage inequality is accounted for by of wage inequality is accounted for by inequalityinequality among individuals among individuals within the educational groupswithin the educational groups as as well as by inequality among individuals well as by inequality among individuals within the industry within the industry groupsgroups. The relevance of the within-group inequality increased . The relevance of the within-group inequality increased during the decadeduring the decade

Between 1990/1991 and 1998/1999 Between 1990/1991 and 1998/1999 wage premiums changed wage premiums changed widelywidely (increase and less dispersion). The relationship between (increase and less dispersion). The relationship between industry wage premiums and tariffs is negative and statistically industry wage premiums and tariffs is negative and statistically significant. This suggests that a reduction in tariffs is associated significant. This suggests that a reduction in tariffs is associated with an increase in wage premiums with an increase in wage premiums

The negative and statically significant relationship is confirmed The negative and statically significant relationship is confirmed also in the specific case of unskilled laboralso in the specific case of unskilled labor


Thanks!Thanks!

AcknowledgmentsAcknowledgments

University of Rome “La Sapienza”; Moroccan Direction of StatisticsUniversity of Rome “La Sapienza”; Moroccan Direction of Statistics

wage inequality and trade liberalization in mps: evidence for morocco by silvia muzi

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