RIEB Discussion Paper Series No.2025-04

Title

Trade Liberalization, Wage, and Unemployment: Theory and Evidence from Chile

Abstract

We develop a theoretical model that incorporates a fair wage model into a trade model with heterogeneous firms to analyze the effects of trade liberalization on wages and unemployment rates. By introducing a unique setting for the determinant of average wage, the model predicts that lower trade costs lead to higher average productivity, thereby raising wages and reducing unemployment rates. The empirical analysis employing different exposures to regional trade agreements across local labor markets in Chile from 2000 to 2006 finds that the reduction in input tariff rates expectedly increased local wages and decreased unemployment rates.

Keywords

Firm heterogeneity; Unemployment rate; Fair wage; Regional trade agreements; Local labor markets, Chile

JEL Classification

F12, F16, F61 J31, J64

Inquiries

Sayaka TAKADA
Research Institute for Economics and Business Administration, Kobe University

Yoshimichi MURAKAMI
Research Institute for Economics and Business Administration
Kobe University
Rokkodai-cho, Nada-ku, Kobe
657-8501 Japan
Phone: +81-78-803-7036
FAX: +81-78-803-7059