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  • Editors' Summary
  • Eduardo Engel, Francisco H. G. Ferreira, and Roberto Rigobon

Economía always seeks to publish articles that apply rigorous thinking and credible empirical methods to the analysis of issues that are directly relevant to policy in Latin America today. This is particularly clear in this thirteenth issue of the journal. The five papers belong to different fields within economics, but their common thread is a direct bearing on pressing public policy issues in the region. One paper sheds new light on the mechanisms through which trade liberalization affects wage premiums. Two analyze the consequences of reform in the provision of social services: changes in the funding of health care in Colombia in one case, and the expansion of Oportunidades to urban Mexico in the other. The last two papers investigate the consequences of Latin America's reliance on foreign savings for the continent's borrowing costs, and for the conduct of fiscal policy.

An influential theoretical perspective on why trade liberalization often (but not always) is found to contribute to increases in wage premiums in Latin America is that it helps spur skill-biased technological change that raises firms' demand for skilled labor. One mechanism for the diffusion of new technologies that may be complementary to skilled labor is the reduction in tariffs on technologically intensive inputs, like computers and machinery. It is generally difficult, however, to empirically disentangle this effect from a variety of confounding factors, such as changes in the skill composition of labor supply or changes in output tariffs.

In the first paper in this issue, Bruno Giovanetti and Naércio Menezes-Filho do just that. Working with three skill groups of workers (unskilled, semiskilled, and skilled), they first document some basic stylized facts for Brazil's labor market in 1980–98: the supply of semiskilled labor increased faster than that of the other two categories; wage differentials rose between skilled and semiskilled workers, but fell between semiskilled and unskilled workers. Since the behavior of the wage gaps is consistent with the changes [End Page vii] in labor supply, the authors ask whether labor demand played any role in the observed changes in the wage distribution.

The authors combine a matched employer-employee data set for the formal sector with firm-level output and industry-level tariff data to ask whether trade liberalization contributed to increases in the demand for skilled labor, via skill-biased technological transfer. The results do provide some support for the theory: skilled workers and capital appear to be complements in Brazilian manufacturing, and input tariffs are negatively correlated with the share of skilled workers in employment, even when the authors control for output tariffs. The same result is not robustly obtained for semiskilled workers. This indicates that greater openness in Brazil—and perhaps in other Latin American countries—did contribute to an increase in the demand for skilled workers, and thus to higher wage premiums, by reducing the cost of inputs that embody new, skill-intensive technology.

This effect takes place primarily within firms. The between-firm component of the change in the share of skilled workers is negative, as firms that use skilled labor most intensively decrease their participation in total employment. This is consistent with the Stolper-Samuelson theorem: as protection for skill-intensive goods falls, production and employment retrench in that sector. All of the pieces of the puzzle appear to fit together. The paper presents evidence that trade liberalization contributes to higher wage-premiums through skill-biased technological transfer, but this effect is offset through the Stolper-Samuelson mechanism. Although Giovanetti and Menezes-Filho do not discuss the net effect for wage inequality, other work suggests that the latter effect dominates in Brazil.

In a context of technological and policy changes such as these, human capital investment and social protection policies become increasingly urgent. Improving services for the poor, in particular, has long been an important challenge for Latin American governments. Many economists argue that demand-side incentives may help further this goal, since service providers are then faced with similar incentives to those that would prevail in a competitive market. Alejandro Gaviria, Carlos Medina, and Carolina Mejía provide a cautionary note on this expectation...


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