GEP Research Paper 99/11

Further Evidence on the Effect of Foreign Competition on Industry Level Wages

David Greenaway, Bob Hine and Peter Wright

This paper was subsequently published in Weltwirtschaftliches Archiv , Vol. 136, No. 3, pp.41-51, 2000.

Abstract

This paper examines the impact of trade changes on industry level wage outcomes. Using a specially constructed (and possibly unique) panel combining trade, industrial structure and labour market data we estimate wage equations across a large number of UK industries. The results suggest that on average increases in trade, whether emanating from imports or exports, serve to decrease wages. This evidence is consistent with the view that foreign trade acts to moderate the demand for an industry's output and hence to discipline wage setting. The data set is such that in addition to testing for the impact of trade expansion in the aggregate, we can also investigate the effects of increased imports from (exports to) particular groups of trading partners. This analysis suggests that trade with the East Asian Economies has disproportionately affected the wages of those at the lower end of the income distribution and therefore served to increase wage inequality.

Issued in July 1999.

This paper is available in PDF format .