International Trade, the Gender Wage Gap, Female Labor Force Participation and Growth

This paper analyzes the effect of international trade on the gender wage gap and the resulting impact on households’ trade-off between female labor force participation (FLFP) and fertility. We argue that whenever trade expands sectors intensive in female labor, the gender wage gap widens and FLFP falls. In a model where male labor and female labor are two distinct factors of production we distinguish between a female intensive sector and a corresponding male intensive sector. Since the female intensive sector is also the capital intensive one, trade integration of a capital-abundant economy brings about a price increase of the good produced in the female intensive sector. This price increase generates the following two economic forces. First, it raises the factor rewards and, in particular, female wages. However, as male wages are affected proportionately the gender wage gap and therefore FLFP remain constant. Second, the price increase induces a factor reallocation, consisting mainly of male labor, from the male intensive sector to the female intensive one. This factor reallocation dilutes the capital intensity in the female-intensive sector. The relatively high complementarity between capital and female labor causes the marginal productivity of females to drop more than that of males, the gender wage gap widens and FLFP falls. We provide empirical evidence on U.S.-Mexican trade flows that supports our theory.