Abstract
This paper studies the interlinked relationship between globalization and technological upgrading in affecting employment and wages of skilled and unskilled workers in a middle income developing country. It exploits a unique longitudinal firm-level database that covers all manufacturing firms in Turkey over the 1992–2001 period. Turkey is taken as an example of a developing economy that, in that period, had been technologically advancing and becoming increasingly integrated with the world market. The empirical analysis is performed at firm level within a dynamic framework using a model that depicts the employment and wage trends for skilled and unskilled workers separately. In particular, the System Generalized Method of Moments (GMM-SYS) procedure is applied to a panel dataset of about 15,000 firms. Our results confirm the theoretical expectation that developing countries face the phenomena of skill-biased technological change and skill-enhancing trade, both leading to increasing the employment and wage gap between skilled and unskilled workers. In particular, a strong evidence of a relative skill bias emerges: both domestic and imported technologies increase the relative demand for skilled workers more than the demand for the unskilled. “Learning by exporting” also appears to have a relative skill- biased impact, while FDI imply an absolute skill bias.
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Notes
However, product innovations may reveal their labor-friendly nature in DCs, as well (see Mitra and Jha 2015).
HO–SS theory in fact predicts that trade liberalization would reduce inequality in DCs, since they would specialize in the production and export of unskilled-labor-intensive goods, given that unskilled-labor is the abundant factor in those countries. This will in turn raise the real income of the unskilled labor and thus decrease the wage gap between skilled and unskilled labor (see Wood 1994, 1995).
For a thorough survey on the literature on international diffusion of technology, see Keller (2004).
The decision to categorize skilled and unskilled labor based on this division stems from the fact that this approach has been widely used in the relevant literature, showing satisfactory results and a very strong correlation with the alternative classification based on educational attainments (see for example, Berman et al. 1994; Leamer 1998). Moreover, Meschi et al. (2011), using data from the Turkish Labor Force Survey on the composition and educational level of the Turkish manufacturing workforce, show that administrative employees are on average significantly more educated than production workers. In addition, the substantial wage differential between WC and BC workers is a further indication for skill differences.
Under the hypothesis of elasticity of substitution between skilled and unskilled labor equal to one, an increase in the wage bill share can be interpreted as an upward shift of relative labor demand for skilled workers (see Berman and Machin 2000). The wage bill share of skilled workers can be expressed as: \(WBSH = \frac{{w_{s} S}}{{w_{s} S + w_{l} L}} = \frac{{w_{s} S}}{wE}\) where w is wages, s subscript denotes skilled labor, l subscript denotes low-skilled labor, S and L are respectively the number of skilled and low-skilled workers and E is total employment. Taking the logarithm, the formula can be decomposed as follows: \(\log (WBSH) = \log (w_{s} /w) + \log (S/E)\). If the elasticity of substitution between S and L is one, WBSH is constant along a relative demand curve, so that the log change in relative wages and that of relative employment sum to zero: \(\Delta { \log }(WBSH) = \Delta { \log }(w_{s} /w) + \Delta { \log }(S/E) = 0\).
Until 1980, Turkish economic and trade policies were characterised by import-substituting industrialisation under heavy state protection. In January 1980, a comprehensive structural adjustment reform programme was launched and a major component of the reform package consisted in trade liberalisation policies. In 1989, the country opened up its domestic and asset markets to international competition with the declaration of the convertibility of the Turkish Lira in 1989 and the elimination of controls on foreign capital transactions. In 1996, Turkey signed the Custom Union agreement with the European Union and Free Trade Agreements with the European Free Trade countries, such as Central and Eastern European countries, and Israel. These policy changes led to significant increases in both imports and exports. For example, the import penetration ratio for manufacturing increased from 15 % in 1980 to 30 % in 2000 (Taymaz and Yilmaz 2007).
From a macroeconomic point of view, the Turkish gross domestic expenditure on R&D (public and private) to GDP ratio has in fact increased over the investigated decade (from 0.49 in 1992 to 0.72 in 2001), but still falling much lower than the OECD average (see Elci 2003).
Assuming that markets are competitive, then the wage of each factor is given by the derivative of Y with respect to each factor BC and WC. As can be seen, Eqs. (5) and (6) include the female share (FS) as an additional control that may affect wage evolution (see, for example, Ilmakunnas and Maliranta 2005; Heyman et al. 2007). Finally, since wage can be seen as a component of firm’s value added, Y has been lagged one period in the two wage equations to avoid endogeneity.
It is distributed as a χ2 where the degrees of freedom equate the number of restricted coefficients.
Results available from the authors upon request.
In particular, firms whose share of foreign ownership rises above 10 %, increase the employment of white-collar workers by 11 %, while does not affect BC’s employment. Acquiring patents from abroad in fact leads to a 7.8 % growth in WC employment and 3.2 % growth in BC employment.
This outcome is also consistent with that obtained by Meschi et al. (2011), although the role of exports turns out to be even more statistically significant in the present study. The results are also in line with Lo Turco and Maggioni (2013) who support the positive internationalization effects on the firm employment growth in Turkish manufacturing sector.
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We wish to thank Ilina Srour (American University of Beirut) for her impeccable research assistance.
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Meschi, E., Taymaz, E. & Vivarelli, M. Globalization, technological change and labor demand: a firm-level analysis for Turkey. Rev World Econ 152, 655–680 (2016). https://doi.org/10.1007/s10290-016-0256-y
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DOI: https://doi.org/10.1007/s10290-016-0256-y