mobility across sectors, and industry affiliation is an important determinant of workers’ earnings, then the impact of trade reform might be more pronounced on wages than employment.

The micro literature, however, also finds differing results of the effect of trade liberalization on industry wages. Slaughter (2001) shows that a decline in transport costs in the United States had no impact on regional wages or inter-regional wage convergence. Goldberg and Pavcnik (2005) find that reductions in output tariffs reduce industry wage premiums in Colombia, while in Brazil Pavcnik et al. (2004) find insignificant effects of a decline in output tariffs on industry wage premiums, even though industry affiliation is an important component of worker earnings. Amiti and Davis (2011) reconcile these differences by allowing the effect of tariff cuts on firm wages to depend on the firm’s export and import orientation, raising workers’ wages within firms that export and use imported inputs. The authors, however, assume homogenous labor and perfect labor markets.

There is evidence from the micro literature that the impact of trade on workers can depend on worker characteristics, such as skill level and formality status. Large rice price increases after trade reforms in Vietnam are associated with shifts in labor from informal households to wage labor markets (Edmonds and Pavcnik 2006). Hanson and Harrison (1999) find that in Mexico, the trade reforms of 1985 disproportionately affected low-skilled industries, potentially explaining the increase in wage inequality; because different industries employ different proportions of skilled and unskilled workers, increasing the relative price of skilled-intensive goods may translate into changes in the relative incomes of skilled relative to unskilled workers. Geishecker and Görg (2005) show that low-skilled workers in low-skill-intensive industries (not high-skill-intensive industries) experience reductions in real wages resulting from international fragmentation within their industry, while the opposite is true for high-skill workers in high-skill-intensive industries. The paper’s results are in line with the studies by Munch and Skaksen (2009) and Geishecker and Görg (2008) that show foreign outsourcing harms low-skilled workers but improves the wages of high-skilled workers. In the United States, the connection between globalization, technology and wages has also become more important in explaining increased labor inequality in recent years (Haskel et al. 2012).

An important issue in the context of this paper, however, is that of micro- versus macro-level studies. While micro-level studies are very popular within and outside the academic economics profession, macro-level studies are not as well respected these days. However, we argue that broad questions of the sort we are dealing with in this paper can best be answered through cross-country, macro-level panel regressions. Micro-level studies, which find that wages and/or employment go up in some sectors and fall in others and within a sector they go up in some firms and fall in others in response to structural reforms, can provide insights into the conditions under which reforms impact heterogeneous groups differently. But these studies by design are silent with respect to aggregate or economy-wide effects driven by general equilibrium dynamics, and thus they are of lesser value to policy makers who have to decide on broad policy reforms such as trade reforms, industrial deregulation, tax reforms, etc. In fact, it is plausible that the estimated micro effects give us a partial and incomplete picture when the within-firm or within-industry effects are estimated without taking into account resulting labor flows between industries or firms within an industry or into or out of unemployment, informality, or even the labor force. More specifically, ignoring the destinations (or sources) of labor flows out of (or into) 6