The effect of trade liberalization on inter-industry wage difference in Indonesia’s manufacturing sector

This study analyzes the effect of trade liberalization on wage inequality through industry wage premiums in Indonesia’s manufacturing sector between 2000 and 2015, a period marked by low import tariffs. The study was undertaken by adopting a two-stage estimation approach. Using the national labor fo...

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Main Authors: Watekhi Watekhi, Nachrowi Djalal Nachrowi
Format: Article
Language:English
Published: Taylor & Francis Group 2020-01-01
Series:Cogent Economics & Finance
Subjects:
Online Access:http://dx.doi.org/10.1080/23322039.2020.1853325
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spelling doaj-bd3b6bcb020a429cac61c72ae42d99922021-06-02T10:12:14ZengTaylor & Francis GroupCogent Economics & Finance2332-20392020-01-018110.1080/23322039.2020.18533251853325The effect of trade liberalization on inter-industry wage difference in Indonesia’s manufacturing sectorWatekhi Watekhi0Nachrowi Djalal Nachrowi1BPS-Statistics IndonesiaUniversitas IndonesiaThis study analyzes the effect of trade liberalization on wage inequality through industry wage premiums in Indonesia’s manufacturing sector between 2000 and 2015, a period marked by low import tariffs. The study was undertaken by adopting a two-stage estimation approach. Using the national labor force survey dataset from Sakernas (Survei Angkatan Kerja Nasional—Indonesia Labor Force Survey), first, the study estimates industry wage premiums conditional on individual worker characteristics. In the second stage, the data are pooled across industries over time, then regressed on import tariff of final goods as a measure of trade liberalization, controlling for market concentration. The study finds a negative effect of import tariffs on industry wage premiums, implying that industry wage premiums decreased by more in sectors facing a larger tariff hike, and, vice versa, industry wage premiums increased by more in sectors experiencing larger tariff cuts. This suggests that trade liberalization contributes to wider wage inequality through inter-industry wage difference. Therefore, a more selective measure should be taken in implementing trade liberalization by opening wider access for superior commodities and protecting less-competitive commodities with high domestic demand.http://dx.doi.org/10.1080/23322039.2020.1853325trade liberalizationwage inequalityinter-industry wage difference
collection DOAJ
language English
format Article
sources DOAJ
author Watekhi Watekhi
Nachrowi Djalal Nachrowi
spellingShingle Watekhi Watekhi
Nachrowi Djalal Nachrowi
The effect of trade liberalization on inter-industry wage difference in Indonesia’s manufacturing sector
Cogent Economics & Finance
trade liberalization
wage inequality
inter-industry wage difference
author_facet Watekhi Watekhi
Nachrowi Djalal Nachrowi
author_sort Watekhi Watekhi
title The effect of trade liberalization on inter-industry wage difference in Indonesia’s manufacturing sector
title_short The effect of trade liberalization on inter-industry wage difference in Indonesia’s manufacturing sector
title_full The effect of trade liberalization on inter-industry wage difference in Indonesia’s manufacturing sector
title_fullStr The effect of trade liberalization on inter-industry wage difference in Indonesia’s manufacturing sector
title_full_unstemmed The effect of trade liberalization on inter-industry wage difference in Indonesia’s manufacturing sector
title_sort effect of trade liberalization on inter-industry wage difference in indonesia’s manufacturing sector
publisher Taylor & Francis Group
series Cogent Economics & Finance
issn 2332-2039
publishDate 2020-01-01
description This study analyzes the effect of trade liberalization on wage inequality through industry wage premiums in Indonesia’s manufacturing sector between 2000 and 2015, a period marked by low import tariffs. The study was undertaken by adopting a two-stage estimation approach. Using the national labor force survey dataset from Sakernas (Survei Angkatan Kerja Nasional—Indonesia Labor Force Survey), first, the study estimates industry wage premiums conditional on individual worker characteristics. In the second stage, the data are pooled across industries over time, then regressed on import tariff of final goods as a measure of trade liberalization, controlling for market concentration. The study finds a negative effect of import tariffs on industry wage premiums, implying that industry wage premiums decreased by more in sectors facing a larger tariff hike, and, vice versa, industry wage premiums increased by more in sectors experiencing larger tariff cuts. This suggests that trade liberalization contributes to wider wage inequality through inter-industry wage difference. Therefore, a more selective measure should be taken in implementing trade liberalization by opening wider access for superior commodities and protecting less-competitive commodities with high domestic demand.
topic trade liberalization
wage inequality
inter-industry wage difference
url http://dx.doi.org/10.1080/23322039.2020.1853325
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