Université de Lausanne
Faculté des
HEC
Département d'économétrie
et d'économie politique
Cahier de recherches économiques du DEEP No. 11.04
Marius Brülhart, Céline Carrère and Federico Trionfetti
How
Wages and Employment Adjust to Trade Liberalization:
Quasi-Experimental Evidence from Austria
June 2011
Abstract
We study the response of regional employment and nominal wages to trade liberalization,
exploiting the natural experiment provided by the opening of Central and Eastern
European markets after the fall of the Iron Curtain in 1990. Using data for
Austrian municipalities, we examine differential pre- and post-1990 wage and
employment growth rates between regions bordering the formerly communist economies
and interior regions. If the "border regions" are defined narrowly,
within a band of less than 50 kilometers, we can identify statistically significant
liberalization effects on both employment and wages. While wages responded earlier
than employment, the employment effect over the entire adjustment period is
estimated to be around three times as large as the wage effect. The implied
slope of the regional labor supply curve can be replicated in an economic geography
model that features obstacles to labor migration due to immobile housing and
to heterogeneous locational preferences.
Keywords: trade liberalization; spatial adjustment; regional labor supply; natural experiment
JEL classification: F15; R11; R12