Trade Liberalization and the Lead Role of Human Capital and Job Attributes in Wage Determination

Abstract

This study analyzes the role of human capital and job attributes, i.e., supply-side determinants, in determining wages in a period of trade liberalization. Using the Mincerian earning function and based on data from the Labor Force Surveys, we construct a model to estimate various wage determinants and compute the rates of return to different educational qualifications and relative occupational wage shares for the years 2005/06 and 1990/91. The estimated earning functions for 1990/91 and 2005/06 are compared to investigate whether individual characteristics—such as gender, job location, nature of job, educational qualifications, and different occupations—cause the wage gap to widen or contract under conditions of trade liberalization. The mean and quantile regression approach is used for estimation purposes. Our key findings postulate (i) an increasing gender pay gap, (ii) a higher wage premium to the highest educational qualification, and (iii) more or less stable relative wages for different occupations over time. In addition, wage dispersion across occupational groups appears more pronounced in 1990/91 than in 2005/06, implying a declining trend in the difference in wage distribution across occupations. Our findings suggest that trade liberalization cannot be presumed to pose a threat to the labor market in the wage context. However, exposing labor to an open market has not increased the productivity and skills of labor or helped reap the potential benefits of trade liberalization.