Trade and Workers: Evidence from the Philippines

We combine labor force survey data with trade and production data to examine the impact of trade on wages and employment in the Philippines' manufacturing section. Our main finding are as follows. First, in contrast to findings typically reported for Latin American countries, our data indicate that wage inequality in the Philippines' manufacturing sector has declined over the period in which trade liberalization has been undertaken. This is despite the fact that reductions in tariff rates were largest in less skill intensive manufacturing industries. There has also been an absence of any secular rise in returns to higher education. Second, tariff reductions have been associated with declines in industry wage premiums in capital-intensive industries. Moreover, these declines appear to have been largest for skilled workers. Finally, tariff reductions have had an insignificant effect on both employment as well as the average hours of work of full-time employees across industries. These findings are consistent with a scenario where workers in capital-intensive industries, especially the more skilled ones, earned rents prior to trade liberalization; liberalization may have worked to erode these.