International Trade and Wage Discrimination : Evidence from East Asia

Abstract

This study explores the impact of
 competition from international trade on wage discrimination
 by sex in two highly open economies. If discrimination is
 costly, as posited in neoclassical theory based on Becker
 (1959), then increased industry competitiveness from
 international trade reduces the incentive for employers to
 discriminate against women. Alternatively, increased
 international trade may contribute to employment segregation
 and reduced bargaining power for women to achieve wage
 gains. The approach centers on comparing the impact of
 international trade on wage discrimination in concentrated
 and nonconcentrated 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 proxied by the
 portion of the wage gap that cannot be explained by
 observable skill differences between men and women. The
 empirical model is estimated using a rich 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. These results imply that concerted efforts
 to enforce equal pay legislation and apply effective equal
 opportunity legislation are crucial for ensuring that
 women's pay gains will match those of men in a
 competitive environment.