RUI: Understanding the Labor Market Implications of Western Hemispheric Economic Integration

Macalester College, Saint Paul MN

Investigators

Abstract

The primary goal of this project is to study the effects of economic integration on labor markets. This project supports three primary activities: data collection, research, and the development of a web-based teaching tool for undergraduate education. The project complements the Program for the Improvement of Surveys and the Measurement of Living Conditions in Latin America and the Caribbean implemented by the Inter-American Development Bank, the World Bank, and the Economic Commission of Latin America and the Caribbean of the United Nations. The academic literature has established that three types of data are necessary to thoroughly examine the effects of international economic integration on labor markets. First, the Heckscher-Ohlin (HO) framework that embodies the Stolper-Samuelson theorem suggests that product-price data are necessary because, in the HO model, price changes directly affect wages. Second, models that move beyond the single cone framework and relax additional assumptions of the HO model suggest that trade liberalization affects firm behavior and ultimately wages, employment, and productivity. Thus, firm-level surveys are also necessary. Third, household-level surveys are necessary to capture worker heterogeneity, measure skill, and control for changing demographic patterns. This project will collect and harmonize these three types of data from the four largest Latin American countries: Argentina, Brazil, Chile, and Mexico. The principle investigator has already collected these data for Mexico and will combine these data with similar U.S. data to analyze effects of U.S.-Mexican integration. As the data arrive from the rest of Latin America, they will extend the initial research. The goal of the research component is to produce at least three empirical papers. The first will examine the role of borders and distance in segmenting labor markets and identify which factors play the largest role in market integration. The second will apply the HO model in a price study by comparing mandated wage equations and cointegration techniques using time series of wages and prices. The third will relax the numerous assumptions of the HO model to explore factors at work at the firm level that affect labor markets, such as technology choice. The research and data collection will be integrated with teaching through the development of a web site. This web site will provide Internet access to the data and serve as a source point for structured upper-division undergraduate research projects. The site will also be used to guide lower-division undergraduate research projects by making tailored subsets of the data available for "active learning" projects that illustrate key concepts in international economics. The goal of the upper-division component is to develop a class for economics majors in which students use the web site as part of original publishable research. The timing of the research corresponds to the Free Trade Agreement of the Americas negotiations so that the results may inform involved countries about potential benefits and risks of the agreement. Because the data will ultimately be universally available, it will help fill a large gap in the empirical literature on the effects of liberalization in developing countries. The research also directly addresses currently unresolved academic issues in the "trade and wages" debate and offers potentially important contributions to the literature. The web tool will significantly enhance economic education in ways consistent with recent studies of undergraduate education by using technology in the classroom to encourage active learning.