LOCAL IMPACTS OF GLOBAL MARKETS Trade Reform and Worker Flows in Brazil Marc-Andreas Muendler UC San Diego partly joint with Na´ ercio Menezes, U and IBMEC S˜ ao Paulo ILO-WTO Workshop on Global Trade and Employment: Sept 1, 2009
ILO-WTO Workshop Geneva 2009 : Trade Reform and Worker Flows in Brazil ⃝ Marc Muendler c Trade, Employment and Earnings ∙ The real wage is 푊 푖 푃 푖 for income group 푖 ∙ Most of the literature is concerned with 푊 푖 conditional on employment ∙ But there are spells of unemployment with 푊 푖 = 0 after trade reform ∙ Trade reform also alters 푃 푖 , expectedly lowering it to different degrees for different income groups
ILO-WTO Workshop Geneva 2009 : Trade Reform and Worker Flows in Brazil ⃝ Marc Muendler c Reform and Growth ∙ Despite vigorous pro-competitive and trade reforms, growth in Latin America throughout the 1990s remained relatively slow ∙ Lacking resource reallocation following pro-competitive reform may be a cause of sluggish performance ∙ Brazil’s trade reform triggers worker displacements particularly from protected industries, as trade theory predicts and welcomes ∙ But neither comparative-advantage industries nor exporters absorb trade-displaced workers for years
ILO-WTO Workshop Geneva 2009 : Trade Reform and Worker Flows in Brazil ⃝ Marc Muendler c Empirical Objective and Findings ∙ Assess labor reallocation after Brazil’s large-scale trade reform ∙ Linked employer-employee data permit tracking of individuals between identified establishments over 1986-2001 period ∙ Shifts in product-market shares to more advanced firms and exporters commonly interpreted as evidence for successful resource realloca- tion ∙ But labor flows away from export sectors and exporters because labor productivity increases faster than production so that output shifts to more productive firms but labor does not
ILO-WTO Workshop Geneva 2009 : Trade Reform and Worker Flows in Brazil ⃝ Marc Muendler c Tariffs and Reallocations at Four-year Horizon Failed reallocations Reallocation durations .25 10.25 10.06 10 0.24 Workers Without Reallocation (share) Product Market Tariff (ad valorem) Product Market Tariff (ad valorem) Reallocation Duration (months) 0.22 9 0.20 .2 0.63 0.63 0.63 0.63 0.54 0.54 8 0.43 0.43 0.37 0.37 7 .15 6.84 0.28 0.28 0.21 0.21 0.17 0.17 6 0.15 0.15 0.15 0.15 0.15 0.15 0.13 0.13 .1 86 87 88 89 90 91 92 93 94 95 96 97 86 87 88 89 90 91 92 93 94 95 96 97 Calendar year Calendar year Product Market Tariff Product Market Tariff Displaced Workers Without Reallocation Reallocation Duration Sources : RAIS 1986-2001 (1% random sample), workers nationwide of any age and gender, dis- placed from a formal-sector job; rehired into a formal-sector job within 48 months. Product tariffs from Kume et al. (2000), employment weighted at N´ ıvel 50 sector level.
ILO-WTO Workshop Geneva 2009 : Trade Reform and Worker Flows in Brazil ⃝ Marc Muendler c A Literature View ∙ Haltiwanger, Kugler, Kugler, Micco & Pag´ es (2004): Sectors in six Latin American countries; tariff reductions and appreciations raise churning, reduce employment (also Wacziarg & Wallack 2004) ∙ Goldberg & Pavcnik (2003): Industry-level two-step approach; tariff declines associated with informality in Colombia, not in Brazil ∙ Saint-Paul (1997), Cunat & Melitz (2006): Countries with flexible fac- tor markets export products from industries with high factor turnover ∙ Melitz (2003), Bernard, Redding & Schott (2007): Exporting firms within sectors; Raith (2003): Competition and performance
ILO-WTO Workshop Geneva 2009 : Trade Reform and Worker Flows in Brazil ⃝ Marc Muendler c Labor Market Performance and Economic Outcomes 1986 1990 1992 1994 1998 F AILED R EALLOCATIONS WITHIN A Y EAR Mean failure rate (share of displaced) .285 .354 .441 .391 .474 female workers .387 .427 .500 .451 .517 young workers .297 .361 .445 .384 .446 high-school or college educ. workers .305 .350 .416 .366 .435 Idle labor (foregone share of GDP) .000 .024 .009 .037 D URATIONS OF S UCCESSFUL R EALLOCATIONS WITHIN A Y EAR Mean duration (in months) 2.918 3.927 4.280 4.125 4.253 female workers 3.157 3.965 4.097 4.017 4.097 young workers 2.896 3.909 4.184 3.969 4.105 high-school or college educ. workers 2.558 3.397 3.622 3.458 3.633 Idle labor (foregone share of GDP) .000 .008 .004 .008 Sources : RAIS 1986-1999 (1% random sample), workers nationwide of any age and gender, displaced from a formal-sector job; not rehired into a formal-sector job within 12 months ( upper panel ) or rehired into a formal-sector job within 12 months ( lower panel ). PME 1986-1999, share of idle workers (unemployed or withdrawn from labor force), and Banco Central do Brasil , GDP .
ILO-WTO Workshop Geneva 2009 : Trade Reform and Worker Flows in Brazil ⃝ Marc Muendler c Productivity Change and Market Shares, Olley & Pakes (1996) TFP and Output shares Labor Prod. and Employment shares Cross section Ann. chg. Cross section Ann. chg. raw cov. 푎 wgtd. unwgtd. cov. raw cov. ∗ wgtd. unwgtd. cov. (1) (2) (3) (4) (5) (6) (7) (8) 1986 1.018 .924 .095 1.011 1.019 -.008 1990 1.000 .899 .101 .065 1.000 .997 .003 -.029 1994 1.013 .918 .096 .067 1.023 1.019 .005 -.043 1998 1.035 .910 .125 .047 1.073 1.043 .030 -.039 푎 Four-year average of the raw covariance between annual share changes and outcome changes. Source : PIA firms 1986-98 (1991 missing); log total factor productivity based on Olley & Pakes (1996) estimation (at N´ ıvel 50 ), inferring labor productivity at changing capital stocks. 푦 푡 + ∑ Note : Cross-sectional productivity decomposition as in Olley & Pakes (1996): 푦 푡 = ¯ 푖 ∆ 휃 푖푡 ∆ 푦 푖푡 , where 푦 푡 is weighted and ¯ 푦 푡 is unweighted mean log productivity and ∆ denotes deviations from cross- section means (rebased to unity in 1990). Annual productivity change correlation ∑ 푖 ∈ 퐶 ∆ 휃 푖,푡 ∆ 푦 푖,푡 (raw covariance) from Haltiwanger (1997) decomposition, where ∆ denotes annual change (not rebased).
ILO-WTO Workshop Geneva 2009 : Trade Reform and Worker Flows in Brazil ⃝ Marc Muendler c Workforce Changeover ∙ Two salient workforce changeovers evident from labor-demand de- composition based on Katz-Murphy (1992) framework – Within traded-goods sector, marked occupation downgrading and simultaneous education upgrading – Between sectors, labor demand shift towards least and most skilled (traceable to weaker declines of low-skill intensive traded-goods industries and stronger expansions of high-skill intensive nontraded- output industries) ∙ Observations broadly consistent with predictions of Heckscher-Ohlin trade theory for low-skill abundant economy
ILO-WTO Workshop Geneva 2009 : Trade Reform and Worker Flows in Brazil ⃝ Marc Muendler c Occupational Workforce Recomposition Traded-goods sectors Nontraded-output sectors 100 100 8.0 7.9 7.8 7.6 7.5 8.7 8.4 8.5 9.7 9.8 10.0 10.1 9.9 10.3 10.5 10.3 7.6 7.6 7.5 7.8 7.7 8.0 8.0 16.3 16.1 16.4 16.4 16.2 16.4 16.5 16.2 16.0 16.5 16.4 16.3 8.2 16.6 16.7 16.6 16.7 8.8 8.7 9.0 9.6 9.3 9.3 9.3 9.2 5.3 5.2 5.6 5.7 5.5 6.0 80 6.4 80 7.0 7.1 7.5 7.4 7.5 7.6 7.6 7.8 7.5 20.1 20.0 19.7 20.0 20.0 20.1 21.0 21.4 21.8 21.2 21.2 21.6 21.7 21.6 22.3 22.5 60 60 Share Share 15.3 15.4 15.4 15.5 15.7 16.0 16.6 17.2 16.8 16.7 17.8 17.3 17.0 17.7 18.1 17.5 40 40 20 20 29.2 29.3 28.9 29.5 29.2 28.8 29.2 60.2 59.9 59.3 34.4 33.6 29.4 59.5 59.5 34.9 35.0 34.6 34.2 31.5 59.7 32.4 63.8 62.9 70.6 70.9 67.9 68.7 69.2 70.2 70.5 70.2 14.1 13.8 13.4 13.6 13.3 12.7 10.0 10.3 8.2 8.4 8.3 8.5 8.4 8.7 8.8 8.7 14.0 13.5 13.5 13.3 13.2 13.8 12.9 13.3 14.2 15.2 15.4 15.8 16.0 15.8 15.7 15.8 0 0 1986 87 88 89 90 91 92 93 94 95 96 97 98 99 2000 01 1986 87 88 89 90 91 92 93 94 95 96 97 98 99 2000 01 Unskilled Bl. Collar Skilled Bl. Collar Unskilled Bl. Collar Skilled Bl. Collar Unskilled Wh. Collar Tech’l. or Superv. Unskilled Wh. Collar Tech’l. or Superv. Prof. or Manag’l. Prof. or Manag’l. Source : RAIS 1986-2001 (1-percent random sample), male workers nationwide, 25 to 64 years old, with employment on December 31st. Note : Traded-goods sectors are agriculture, mining and manufacturing (subsectors IBGE 1-13 and 25), nontraded-output industries are all other sectors. Shares based on worker numbers.
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