Trends in Disaggregated Import and Export Prices in Europe: Implications for the Trade and Wages Debate
| Author | Anna Maria Pinna,Paul Brenton |
| DOI | http://doi.org/10.1111/1467-9485.00218 |
| Published date | 01 February 2002 |
| Date | 01 February 2002 |
TRENDS IN DISAGGREGATED IMPORT AND
EXPORT PRICES IN EUROPE: IMPLICATIONS
FOR THE TRADE AND WAGES DEBATE
Paul Brenton and Anna Maria Pinna *
ABSTRACT
We consider carefully the evidence from traded prices (as proxied by unit values)
concerning the transmission of the effects of globalisation to domestic labour
markets. Using standard index number techniques we decompose changes in
sectoral import and export unit values into movements due to changes in pure prices
of the initial bundle of goods imported or exported and changes due to upgrading of
that bundle. Looking at the imports of selected European countries of textiles,
clothing and footwear relative to engineering products we find evidence of strongly
falling pure prices of the unskilled intensive products relative to the skilled products
in the 1980s. This reinforces the view that import prices can capture the impact of
globalisation in terms of falling relative prices for products produced with the
intensive use of unskilled labour. However, the trends are not common across all
the unskilled sectors; footwear is clearly an exception. In the absence of detailed
domestic data, we look for reactions by domestic firms to increased import
competition in movements in the price and composition of exports. We find
evidence of stiff price competition from imports being associated with similar
movements in export prices and no support for the view that import competition
from low-wage countries has led to upgrading of the quality of exports.
II
NTRODUCTION AND BACKGROUND
To what extent has trade with labour abundant low wage economies affected
western labour markets? During the 1980s and 1990s there has been a well-
documented increase in wage inequality between skilled and unskilled workers in
the US and to some extent in the UK. In continental Europe the gap between
skilled and unskilled wages has not widened appreciably. However, there has
been a substantial increase in unemployment propensities for unskilled workers
in these countries. The principal causes of these labour market developments
have been subject to considerable debate and research but as yet no clear-cut
conclusions have been reached.
Scottish Journal of Political Economy,Vol.49,No.1,February2002
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1
*Centre for European Policy Studies, Brussels
Standard economic trade theory demonstrates that more open international
trade can cause the sort of changes in labour markets in OECD markets that
have been observed in the last two decades. It is changes in the price of low-
skilled labour intensive goods relative to the price of skilled-labour intensive
products that lie at the heart of the traditional (Stolper-Samuelson) economic
explanation of the impact of globalisation on domestic labour markets.
However, trade is not the only identifiable culprit for the increasing wage
inequality or falling employment opportunities to have bedevilled unskilled
workers in the OECD countries. Much of the debate on the impact of
globalisation has revolved around empirical analysis of the relative importance
of trade with low-wage countries and the impact of changes in technology. In
this paper we concentrate upon the trade explanation.
The main conclusion from existing empirical studies of movements in relative
prices is that although inequality across skills started to increase during the early
1980s, the domestic prices of unskilled-labour intensive products have shown no
clear decline relative to those of skilled intensive products (Slaughter, 1998).
Movements in producer prices in the US, on the contrary, highlight the 1970s as
the Stolper-Samuelson decade (Leamer, 1996). The evidence for European
countries (Lawrence, 1996; Lucke, 1997; Anderton and Brenton, 1998) suggests
that producer prices of unskilled-labour-intensive goods did not decline by more
than those of skilled-labour-intensive products in neither the 1970s nor the
1980s.
One possible explanation for these results is that sectoral producer prices are
unable to capture the relevant trade shock faced by the industrialised economies
because they are too aggregated. Wood (1997, 1998), for example, argues that
heterogeneity of goods in standard statistical definitions of sectors and changes
in quality over time (which maybe correlated with the skill intensity of
production) could engender substantial errors into available producer price
series. If sub-sectors within industries are different, in terms of requiring
different amounts of skilled and unskilled labour, then more open trade may
reduce the prices of some goods but raise the prices of others, leaving the
industry aggregate price unchanged. Ideally, one would use highly disaggregated
series on producer prices to address this issue, but unfortunately they are not
available.
In addition, countries such as the NICs and other Asian economies, which
initially emerged into the international context by penetrating unskilled-labour-
intensive sectors, have recently diversified their production into unskilled-
labour-intensive activities across a range of unskilled and skilled intensive
industries. Some countries (primarily the NICs) have also been able to shift into
skilled-intensive activities. The use of producer price measures at the industry
level will not enable such within industry adjustments to be discerned.
Wood points instead to changes in the prices of imports and exports, which do
suggest a rising relative price of skilled-intensive products in the 1980s (but not
in the 1970s). However, issues of measurement pertain to import and export
prices, just as to producer prices. In particular, the problems of aggregating over
sub-categories and of quality upgrading remain. For example, the rising relative
2PAUL BRENTON AND ANNA MARIA PINNA
#Scottish Economic Society 2002
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