Globalization and Male-Female Wage Inequality in Sri Lanka: Short Run and Long Run Impacts

Globalization and its impact on wage inequality between skilled-unskilled and male-female laborers have become a crucial research issue over the recent past. It is expected that with increased trade due to globalization developing countries will specialize in producing and exporting unskilled and/or female labor-intensive products and wage rates of unskilled and/or female labor will rise. The objective of this paper is to assess the impact of the expansion of garment exports on male-female wage inequality in Sri Lanka. Short run and long run impacts are assessed under three different assumptions on factor mobility in a general equilibrium setting. Models consist of three sectors (agriculture, garments and rest of the economy) and three factors (male labor, female labor and capital). Textile is considered as a tradable input used in garment production. The first model treats female labor as the specific factor of production. The second model treats capital as the specific factor of production. The third model treats labor and capital as mobile factors. Returns to male labor and female labor are assessed with a number of policy experiments. Models are calibrated to Sri Lankan economy in 2000. Results show that wage gap is narrower when policies expand garment sector. The biggest impact is observed when female labor is treated as the specific factor and the smallest impact is observed when capital is treated as the specific factor. The results imply that the expansion of garment sector has helped to narrow the wage gap and the impact is highly sensitive to the assumptions on the factor specificity. A bigger impact on the male-female wage gap can be expected in the short run due to globalization and its impact will be smaller in the long run.