Trade Liberalization, Inter- industry Wage Differentials and Job Quality in Egyptian Manufacturing

Any part of this publication may be reproduced without permission for limited distribution, provided it is distributed without charge and the Population Council is acknowledged as its source. The Population Council would appreciate receiving a copy of any materials in which the text is used. The authors are grateful to Ragui Assaad and Rania Roushdy for providing us with the data on job quality. We thank Ali Rashed and Gamil AbdelWahed for their assistance with the collection of the trade data. We would also like to thank Ragui Assaad for extremely useful comments and suggestions at various stages of this study, and participants at the Population Council's Dissemination Conference on Poverty, Job Quality and Labor Market Dynamics. 3 Abstract This paper investigates the impact of trade openness on wage and job quality outcomes in the Egyptian manufacturing sector over a period of rapid trade liberalization. We utilize newly available panel labor market survey data for 1998–2006, merge it (at the two-digit industry level) with trade variables that capture export orientation, import penetration as well as direct policy change relating to reduction of average tariffs, and use the merged data set to estimate a two-stage inter-industry wage and job quality premia model. Our results highlight that institutional factors of job quality (social security, medical insurance, a contract, paid casual leave, paid sick leave, and whether the worker is a member of a trade union) have the strongest correlation with the trade variables and the industry-specific characteristics used in the analysis. Tariff reduction per se, does not seem to have had a significant impact on either wages or job quality over this period. On the other hand, increased export orientation exerts a strong positive impact on wages, but a significant negative impact on all job quality indices in many specifications. Finally, industries with the highest import penetration levels have the lowest job quality, but those that had the largest increase in import penetration actually also saw large improvements in job quality. The above results underscore the clear distinction between wage and job quality outcomes in the Egyptian labor market, and the importance of separating the two when examining the effect of trade policy on labor.