Trade liberalization and labor market in Brazil: impacts on employment and wages in tradeables and nontradeables sectors

The aim of this paper is to analyze the impacts of openness on employment and wages, taking into consideration two crucial aspects. The first, related to labor demand, refers to an increase in the relative employment of less-skilled workers. With Brazil being a developing country with abundant less-skilled labor, it can be expected – based on H-O-S – that income redistribution in favor of unskilled labor may occur after the trade liberalization. The second aspect is the impact on tradeables and non-tradeables. The H-O-S model implicitly admits tradeables goods only. However, the effect on the labor market is also felt on the non-tradeables sector. This aspect has been neglected in the analyses concerning this subject in the Brazilian economy. The conclusion raises the point that it is difficult to define any prevalence of labor demand shifts in the tradeables or nontradeables sectors. However, when the analysis is carried out after breaking down data based on levels of education, it is possible to conclude that the demand for unskilled workers increased after trade liberalization in Brazil. Nevertheless, demand shifts among sectors suggest that H-O-S framework does not explain the impacts of trade liberalization in Brazil, since the demand for skilled workers increased among the same sectors. This data, however, needs to be looked at with caution since the stabilization in Brazil (1994) changed income distribution by means and through the effects of an inflation tax and forced saving.