Trade Openness and Gender Discrimination

This paper investigates the impact of trade liberalization on gender wage discrimination. We employ a simple method that is able to capture the direct impacts of openness at the industry level on the gender wages. We find evidence that increasing openness is associated with narrowing wage gap, which results mainly from men's wages declining. This is consistent with the Becker's (1957) proposition that competition reduces discrimination in the labor market.


Introduction
One issue that still attracts much attention of the academia is discrimination in the labor market. Although thousands of pages have been written on this matter, economists are often skeptical about the empirical results because of econometric problems such as self-selection and unmeasured abilities. Discrimination in the labor market has been associated to noncompetitive product markets, and the most common argument assumes that there is a positive differential between wages of men and women in excess of productivity differences due to employer tastes (Becker, 1957). As a consequence, the least discriminatory firm will be able to hire cheaper labor. In the long run, if the industry is competitive, discriminatory firms will be forced to leave the market. Discrimination may exist, however, in noncompetitive environments, where the lack of competition and barriers to entry allow it to exist. Empirical results on product market power have supported the Beckers' model (Ashenfelter and Hannan, 1986;Hellerstein et.al, 2002).
More recently, there is a growing interest on the gender effects of trade policies, but sound empirical evidence is still sparse. This paper tests the hypothesis that competitive market forces act to reduce or eliminate discrimination using the case study of a developing country that experienced very rapid trade liberalization after a long period of economic closeness. This strategy entails significant advantages over the previous studies of this question. First, our case study, Brazil, benefits from the availability of a long and reliable series of individual-level data covering the periods before, during and after trade liberalization, that enables the control for human capital, formal/informal labor contract, among several other variables. In other countries where the issue of trade has been investigated, the available individuallevel data are typically much less comprehensive. Second, the fact that the trade liberalization took place in a short period of time after successive decades following a vigorous import substitution strategy has characterized the Brazilian experience as a (quasi) natural experiment, thus making it a especially suitable case to investigate discrimination. Third, contrary to the typical strategy of "before and after" and/or aggregated analyses applied by previous papers (Oostendorp, 2002;Berik, 2000;Ghiara, 1999) that examined the association between openness and gender discrimination, we employ a simple method that is able to capture the direct impacts of openness at the industry level on the gender wages. Artecona and Cunningham (2002) find similar results than ours, but they are not statistically significant.
The plan of the paper is as follows. The next section presents the trade liberalization in Brazil. Section 3 presents the data, strategy and results. The last section concludes.

The Brazilian trade liberalization
Prior to 1990, the Brazilian economy was highly protected and regulated.
Successive administrations had followed a vigorous import substitution industrialization strategy aimed at protecting the domestic market. Trade barriers were expanded through tariffs, import licenses, different exchange rate regimes for imports and exports, and other measures such as taxes and subsidies. More than half of all industrial products were in the 'Anexo C', a list of items that could not be imported. Such policies left Brazil an especially closed economy by the end of the 1980s. Some modest reduction in tariffs and the lifting of some redundant barriers commenced in 1988. However, the major break with the import substitution strategy began in 1990, under the incoming President Collor administration, when efforts to contain inflation were combined with drastic trade liberalization. The new government introduced a four-year schedule to reduce the degree of protection, but, in practice, it was completed in only three years. By the middle of 1993, most of the complex and bureaucratic non-tariff barriers had been removed, and a new tariff structure was imposed which substantially reduced the degree of protectionism.
In 1987, the weighted average nominal tariff was 55%; by 1992 it had been reduced to 14%. This was accompanied by a sharp reduction in the range of tariffs, reducing the standard deviation to about one third of the previous figure. The weighted average effective tariff, which remained largely unchanged in the 1980s, dropped from 68% in 1987, to 18% in 1992, while the standard deviation declined from 54% to 17% (Kume et al., 2003). While these tariff reductions were not severe by international standards, the removal of the non-tariff barriers shifted the pattern of protection. The new policy was extremely significant, especially for the manufacturing sector, and signaled that the long period of protectionism was at an end. Trade intensity rose accordingly, with imports increasing by 257%, and exports by 151%, between 1990 and 1996.

Empirical evidence
Our main data source, the Pesquisa Nacional por Amostra de Domicílios (PNAD), is a series of nationally representative cross-section household surveys which have been carried out every year since 1976, excepting 1980, 1991, 1994 and 2000. 1 They are conducted using a consistent methodology by the government's statistical agency, Instituto Brasileiro de Geografia e Estatística (IBGE). We use data from 1982 to 1999, thus giving a long series each side of the trade liberalization. Each PNAD contains data on roughly 350,000 individuals in about 100,000 randomly selected households, following face-toface interviews conducted in the third week of September. We restrict our analysis to employed individuals earning a positive wage, aged between 18 and 65 inclusive, at the manufacturing sector.
To test the hypothesis that trade liberalization contribute to reduce discrimination, we first divided our sample in two periods: pre-liberalization (1982-1990) and postliberalization (1992-1999). Female employment participation grew 9.2% after the trade liberalization, passing from 24.9% at pre-liberalization period to 27.2% at the postliberalization period. Table 1 shows the means and standard deviation of the hourly real wage for both male and female. The women's wage grew approximately 5.4% after the trade liberalization, while the men's wage fell about 12.5% in the same period. Over 1982-90, the women's wage was about 54% of that of men, while in 1992-99 it was about 65%.
Thus, the gender wage gap reduced after the openness. In order to examine the gender wage gap before and after the trade liberalization controlling for productive endowments, we employ the wage decomposition method proposed by Blinder (1973) and Oaxaca (1973) for the pre-and post-liberalization periods.
We regress the log of the hourly real wage against education (years of completed study), age, age squared, race, head of family, formal/informal labor relation dummy, urban region, and metropolitan area. Table 2 shows the results of the wage gap decomposition.
The raw wage gap was reduced from 58% at the pre-liberalization period, to 43% at the post-liberalization period. The gender wage gap that can be attributed to non-observable characteristics and/or discrimination fell from 30% to 28%. It can be noticed that both the raw gender wage gap and the residual wage gap reduced in the post-liberalization.  We estimate Mincerian wage regressions against our measure of openness and interactions of this measure and gender dummies. We control for sources of inter-industry wage variation by including a vector of 19 manufacturing industry dummies, so that the openness measure will pick up sources of variation over time which differ across industries. We also include controls for years of study, age, age squared, race, head of family, formal labor relation, geographic region, metropolitan area and urban region. Table 3 presents the estimates of the different impacts of trade liberalization using the measure of the changing degree of openness. Model 1 shows that greater openness is associated with lower wages, i.e., wages fell most in those industries where openness increased more. Its value indicates that, ceteris paribus, a 1% fall in the average tariff rate (an increase in openness) at the mean reduced wages by approximately 0.14%. Given that tariffs fell substantially after 1990, the associated impact of openness on wages was considerable. The specification in Model 2 includes interactions between the measure of openness and male and female in order to ascertain whether the impact of greater openness is borne disproportionately by gender. The estimates suggest that greater openness is associated with substantially lower returns to male as compared to female. While it is -18% for men, it is only -4.6% for women. Thus, the men's wages suffered the most after openness. Notes: Robust standard errors in parentheses are corrected for potential inter-industry/year group correlation. 19 manufacturing industry dummies are also included, being significant at the 1% level, with exception of the electric-electronic industry and the vehicle and parts industry. All coefficients are significant at the 1% level unless otherwise indicated: *significant at the 5% level; **insignificantly different from zero at conventional levels. The period under analysis is 1987-1998 due to tariff data constraints.

Conclusion
This paper investigated the impact of trade liberalization on gender discrimination.
We find evidence that increasing openness is associated with lower wages, but the downward impact of openness on wages is significantly higher for men. The fact that the narrowing wage gap results mainly from men's wages declining suggests that trade reforms generate reductions in rents where they exist. These results are consistent with the Becker's (1957) proposition that competition potentially reduces discrimination in the labor market.