The effects of trade liberalization on inter-industry wage differentials in the Philippine manufacturing sector: A cross section analysis

• Main Authors: Garcia, Angela Kristine R., Manalo, James Victor D., Tiu, Irene Kristina M., Uy, Tabetha Kristie H.
• Format: text
• Language: English
• Published: Animo Repository 2009
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/14444
• Institution: De La Salle University

The actual effects of trade liberalization to a country, specifically on the wages of the workers, has been a subject for discussion ever since it was implemented. Some believe that trade liberalization actually worsen wage inequality in a country, while some believe otherwise. As such, this paper aims to contribute to the existing literature by examining the influence of trade liberalization on the wage differentials between the protected and unprotected manufacturing industries in the Philippines in 1999. It took into consideration several factors which could possibly affect the industry wage differentials namely the weighted average tariff, investment/ capital, workers productivity, profitability of the firm, skill differential, and the level of unionism in each industry. Cross section analysis was the method applied to analyze the effects of trade liberalization on inter-industry wage differentials. The researchers find that liberalization reduces the wage inequality between protected and unprotected industries, with the weighted average tariff, productivity, and skill differential being the variables which significantly affects the wage differentials. For the weighted average tariff and the skill differential, the influence primarily comes from the reduction of the rents which firms mainly use as wage premiums, while productivity's influence follows accordingly with what the Efficiency Wage Theory states. The level of unionism was found out not to have a significant effect to wage differential, which may be because of inefficiencies existing in the union itself, or that the workers still have the capacity to bargain for their wages through their productivity, whether they belong to a union or not."