Trade Effects on Wage Inequality through Worker and Firm Heterogeneity in Japan
This study estimates the trade effect on wage inequality of Japanese manufacturing workers, with consideration of worker and firm heterogeneity. Parameters are obtained from regression results of hourly wage by using constructed worker–establishment panel data. Estimated wage effects differ largely by trade indexes, and the logarithmic real trade value is assessed to be a more appropriate measure for trade in this study. The estimated wage change is positively larger for higher-paid workers, who are employed by larger firms in industries of which Japan has a comparative advantage, while it is negatively larger for lower-paid workers. It implies that wage inequality between industry–size–skill groups is increased by international trade in Japan. However, the actual evolution of wage inequality during 1998–2013 is not successfully explained by the predicted change of wage inequality from international trade. International trade has a potential to widen wage inequality, but its effect is marginal for actual wage inequality compared with other economic and social shocks.