Trade and the Wage Structure: The Case of Manufacturing

Abstract

This paper considers the relationship between international competitiveness and labour market outcomes in New Zealand manufacturing over a twenty-one-year period from 1978 through 1998. Regression evidence suggests increased globalisation has had important and significant impacts on labour demand, particular in the heavily trade-impacted manufacturing sector of the New Zealand economy. The analysis presented suggests foreign competitors are able to capture rents that would othe1wise accrue to domestic producers. In particular entry of international competitors into domestic markets decreases demand f01· (domestic) labour in those industries. In terms of the New Zealand economy, this is manifest, not through lower wages, but through lower employment levels in those markets most affected by imports. Exports, on the other hand, appear to have a positive effect on both wages and employment, although all of the former and much of the latter effect were offset by effects of the Employment Contracts Act (ECA) in the 1990s.