Abstract
The paper assesses the impact of trade liberalization on the labour market by focusing on skill wage premium. The paper tests these effects by developing a monopolistic competition model with two factors of production characterized by their skill levels (skilled and unskilled labour). The paper finds that tariff’s level reductions cause a moderate increase in the wage gap. Thus, our analysis shows that a 10% decrease in tariffs is accompanied by a 16.1 % increase in the skill premium. Also, the same level of tariffs’ cut will on average increase the gender wage gap by 26.8%. The study implies that trade liberalization tends to benefit more workers in the skilled labour market compared to workers in the unskilled labour market.
Labour market institutions: an obstacle or support to Latvian labour market recovery?