Gender Wage Discrimination and Trade Openness. Prejudiced Employers in an Open Industry
Social Science Research Network
International trade has been expected to reduce the gender wage gap by increasing competition and thus reducing the rents that allow employers to discriminate. However, some empirical assessments find an opposite effect. We provide an explanation for the puzzling result that trade openness widens the gender wage gap under certain circumstances. This paper introduces employer taste discrimination in an open economy model with imperfect competition to shed light on the heterogeneous impacts of
... neous impacts of openness on the gender wage gap. Firms operate in an oligopoly where and prejudiced employers can use their rents to pay men a premium, in line with Becker's theory. Penetration of foreign products in the domestic market triggers a surge in competition thus heightening incentives to reduce costs differences which reduces the wage gap. However, an easier access to foreign markets is an opportunity for domestic firms to enhance profits. The model determines under which conditions new export opportunities enable discriminatory firms to maintain their discretionary expenditures. The theoretical predictions are confronted with data for Uruguayan manufacturing sectors that experienced a sharp liberalization of trade in the 1990s. Market access of Uruguayan firms as well as competitors' access to the Uruguayan market, computed at the industry level, are used for the first time to assess the impact of trade openness on the gender wage gap in a specification inspired by the theory.