Guinseli Berik, Yana van der Meulen Rodgers, Joseph E. Zveglich, Jr., The World Bank, Gender Division, 2003
This study looks at the impact of competition from international trade on gender based wage discrimination in two highly open economies Taiwan (China) and the Republic of Korea. The paper argues that if we accept Gary Becker’s theory that discrimination is costly to the person or establishment who discriminates then increased industry competitiveness from international trade reduces the incentive for employers to discriminate against women. Alternatively, increased international trade may lead to outsourcing production and employment segregation thereby reducing the bargaining capacity for women to achieve higher wages.
It is said that as women tend to concentrate in low-skill jobs and men in high-skill ones, neo classical theory predicts trade induced changes in skill to reduce wage differentials. According to the neo classical approach, discrimination can be a tool of competition between firms and industries. Here, wages are determined not only on the basis of the skill but also by the nature of the industry, bargaining power of the workers and the overall employment scenario. Suggesting characteristics of a capitalist economy, particular groups of workers are better positioned to bargain for higher wages. Firms may find it advantageous to employ workers with weak bargaining power in declining industries and high paid workers in others and so wage gap widens. If we look into the case of rising competition and associated pressure to engage in cost-cutting measures, wage gap actually widens. However, assuming Garry Becker’s theory, in an open economy costly discrimination in wages between men and women shall be wiped out in the long run competition.
The study being reviewed compares the impact of international trade on wage discrimination in concentrated and non-concentrated sectors. The effect of international trade competition is expected to be more pronounced in concentrated sectors, where employers can use excess profits in the absence of trade to cover the costs of discrimination. Wage discrimination is considered as the residual wage gap that cannot be explained by observable skill differences between men and women. The empirical model is estimated using panel data set of residual wage gaps, trade ratios, and alternative measures of domestic concentration for Taiwan (China) and the Republic of Korea during the 1980s and 1990s. Results indicate that in contrast to the implications of neoclassical theory, competition from foreign trade in concentrated industries is positively associated with wage discrimination. It implies that conscious efforts are to be made to enforce equal pay legislation even in a competitive environment.
Taiwan (China)'s total manufactured trade to output ratio has risen continuously from a low of 48% in the early 1980s to a high of almost 90% by the late 1990s. Korea's international openness in manufactured goods, while high by most standards, has declined during much of this period, from a high of 56% in 1985 to a low of 45% in 1993. Thus, these two countries depict good reasons for study. Both economies are known for their governments' active roles in guiding development and the extensive use of subsidized credit, tax privileges, and protectionism. For Taiwan (China), consistent with the aggregate trend in overall trade, import and export ratios rose over time for both concentrated and less concentrated industries. As Taiwan’s increased foreign direct investment in East and South East Asia on one hand did away with the labour-intensive industries and on the other raised the imports of such products. Korean import ratios remained stagnant and were lower than Taiwan. During the 80’s and 90’s the structural change in both economies also saw major changes in the labor market and labor force participation rates for men have fallen and for women have risen. At the same time, women's average skills and educational attainment relative to that of men have risen considerably.
The study looks into the trends in wage gaps which are then separated by concentrated and less concentrated industries. For Taiwan (China), the residual wage gap is lower in concentrated industries than in non-concentrated industries. This observation actually counters the static implications of Becker's theory. However, given the primary interest of the study whether international trade induce pressures to reduce discriminatory pay differentials in concentrated industries it is observes that in both concentrated and less concentrated industries, the residual wage gap rises sharply until the mid-1990s and diminishes somewhat during the late 1990s. When compared with the trends in the trade ratios, the period of rising residual wage gaps coincides with a fairly steady increase in both export and import ratios, while the narrowing in the residual wage gap toward the end of the period coincides with a flattening in trade ratios. This suggests that greater openness in trade is associated with a larger differential between male and female wages. Analysis also reveals that real wage levels for both men and women are higher in concentrated industries than non-concentrated industries-though men in non-concentrated industries earn substantially more than women in concentrated industries. The most likely explanation is the ability of firms in concentrated industries to pay higher wages to all workers. For Korea, the residual wage gap in concentrated industries is above that in nonconcentrated industries in the 1980s and below after 1992 and when seen in the light of the trade data series, the decline in the residual wage gap among concentrated industries coincides with trade ratios that are either stagnating or declining.
The paper also illustrates cases of employment changes on wage gap. According to Becker’s theory competitive cost cutting translates into the substitution of cheaper female labor for more expensive male labor as the increase demand for female labour would push up their wages. For Taiwan (China), evidence indicates that over time, the residual wage gap widens with import competition via a relative loss of employment for women, particularly in concentrated sectors. In 1981 female workers tended to cluster in textiles and garments while male workers tended to cluster in basic and fabricated metals. Changes in employment pattern with a large shift out of textiles and apparel into the. electrical equipment and electronics industry while basic and fabricated metals continued to be the largest employer of men. Percentage of female employment in textiles and apparel as well as in the electrical equipment and electronics industries has declined over period and it coupled with a widening of the residual wage gap and growing import shares in both sectors. With 49% of the female workforce textiles and apparel employed the most female workers in Kores in 1980. Over time both women's and men's employment shifted out of textiles and apparel and into electrical equipment and electronics. By 1998 electrical equipment and electronics had become the leading employer of both women and men, accounting for 27% of female and 18% of male employment. Also similar to Taiwan (China), all three industries recorded lower female shares of employment over time. It is to be noted that in the electrical equipment and electronics industry Korea's wage gap actually narrowed in the face of relatively constant export and import shares over time, whereas the Korean textiles and apparel sectors experienced no consistent relationship between trade shares and wage gaps.
Thus, the paper highlights that the largest employers in neither the Taiwan (China) nor Korean manufacturing sectors experienced trends that are consistent with the dynamic implications of Becker's theory. The study extends to the empirical model that tests the degree to which increased industry competitiveness through international trade affects wage discrimination by sex. The empirical model is estimated using a rich panel data set of residual wage gaps, trade ratios, and alternative measures of domestic concentration for two highly open East Asian economies during the 1980s and 1990s. Results indicate that in contrast to the implications of neoclassical theory, competition from foreign trade in concentrated industries is positively associated with wage discrimination against female workers. Import competition appears to widen the wage gap by adversely affecting women's relative employment prospects, leading to a loss of bargaining power for women. In Korea, a slight reduction in export openness appears to be associated with less wage discrimination by gender in concentrated industries.
The paper concludes that although international trade acts as an agent for industry competitiveness, two theoretical approaches to labor market discrimination generate opposing predictions on the impact of international trade on wage discrimination against female workers. If discrimination is costly, then increased industry competitiveness from intemational trade reduces the incentive for employers to discriminate against women. Results for both economies imply that special efforts (government) to enforce equal pay legislation and effective implementation of equal opportunity legislation are crucial for ensuring that women's pay gains will match those of men in a competitive environment.
