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GLOBALIZATION, WAGES, AND THE QUALITY OF JOBS: FIVE COUNTRY STUDIES
information about hours worked, benefits, and other aspects of working conditions that are not available from aggregated or firm-level data. Household surveys also often contain industry of employment and cover many sectors of the economy. The availability and coverage of labor-force (or household) surveys in each of the countries studied in this volume led the authors to focus on worker-level data.
METHODOLOGY Globalization studies can be sorted into three groups according to methodology: event studies, price studies, and quantity studies. Event studies compare the variables of interest before and after a globalization event (for example, rapid trade liberalization). Price studies, mainly applied to studies of globalization and wage inequality, are based on the neoclassical trade theory (the Stolper-Samuelson theorem) that suggests that globalization affects relative wages through changes in relative prices. Quantity studies link quantity measures (such as imports, exports, or FDI) with labor market variables. Each approach has advantages and disadvantages, as discussed below. Event Studies
An event study is an effective analysis tool for comparing working conditions before and after a liberalization event, such as a rapid change in tariffs, or any event for which a clear date delimits the “pre” and “post” periods. The benefits of event studies are that they are straightforward and easy to implement. The key to a successful event study is to control for all the other factors that may have changed at the same time. Mexican trade liberalization (specifically, joining NAFTA) is a perfect example of the perils of the event study. NAFTA went into effect January 1, 1994. In December 1994, the Mexican peso collapsed and sparked a deep recession in Mexico. NAFTA may have contributed to the collapse of the peso, but most scholars agree that macroeconomic factors largely unrelated to NAFTA were the main culprits. Regardless, wages dropped sharply in 1995. Event studies that tried to identify the effects of NAFTA in Mexico have found it difficult to identify the effects of NAFTA separately from the effects of the peso crisis. Nevertheless, an event study is often an excellent tool with which to start an analysis because it will highlight what most analysts care about: the bottom line. For example, wages are either different after liberalization or they are not. If they are not, and there are no confounding events that may have also affected wages, then it is difficult to make the case that liberalization had a significant effect on wages. Prominent examples of event studies include Revenga (1997) and Feliciano (2001), which both focus on Mexico’s decision to join the General Agreement on Tariffs and Trade. Several of the studies in this volume rely on important events, either implicitly or explicitly. All of the countries experienced relatively rapid moves toward globalization. In many countries, the end of the Multifibre Arrangement in 2004 played a significant role and therefore emerges as an important event. Price Studies
Aggregate variables, such as inflation, interest rates, unemployment, and changes in GDP, affect wages and employment. These aggregate variables also affect domestic demand, which affects imports, and domestic production capacity, which affects exports. The result