Answers:
Answer 1
Industrial pay inequality is generally attributes to the difference between the people in workplace as well as inequity in labor market (Lim and McNelis 2014). This defines as the distribution of income in indefinite in unequal way. The two nations for this study is Brazil and UK. The figure below reflects the openness and Industrial pay inequality of these two countries.
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Source: (Authors Note)
Answer 2
Openness also known as trade openness refers to the economic communication or relations between two nations that is mainly driven by trade liberalization , flow of investment and capital and advancement of technologies. Trade openness is the main cause of consecutive rise in inequality in wages between the persons in various areas (Jaumotte et al. 2013). Openness is estimated by the ratio of nation’s trade to its GDP. The correlation between openness and trade for Brazil yields a positive value . On the other hand, correlation index for UK reflects a negative value. Thus, it can be stated that openness in trade might have direct or indirect relation with pay inequality in the respective nation . Therefore, opening of these nations to foreign market seems to have declined pay inequality.
Answer 3
Stopler- Samuelson theorem describes the trade effect in relation with the income distribution of the nation. It also explains that tariff can increase relative as well as absolute income of limited factor used in production and less than that of profuse factor (Dabla-Norris et al. 2016). According to this theorem, openness in economy will result in enhancing real as well as nominal return on that factor that is abundant. Moreover, in the country with huge supply of unskilled laborers, openness will affect in improving the real as well as nominal pay of that workers and thus it will lead to decline in inequality of income.
According to this theorem, openness in trade must have inverse or negative correlation with pay inequality. The correlation value has been estimated in the excel sheet for both these countries from the year 1985 to 2005. The correlation value is found to be negative for UK economy, which highlights that data agrees with the Stopler Sameulson theorem. Therefore, it depicts that pay inequality in industries of UK has declined with liberalization of trade. Owing to increase in trade, the industries demand huge skilled laborers (Breza et al. 2016). This leads to increase in wages of workers in this industry. As a result, expansion of industries increases GDP and consequently wage inequality decreases. On the contrary, the correlation value of Brazil is noted as 0.18. this implies that rise in trade increases wage inequality in the industry of this nation. As the correlation value is low than 0.5, it can be analyzed that trade openness has low impact on pay inequality of this nation’s industries. Hence, this signifies that demand for workers might exceed supply of workers as it has experienced decline in trade during this year.
References
Breza, E., Kaur, S. and Shamdasani, Y., 2016. The morale effects of pay inequality (No. w22491). National Bureau of Economic Research.
Dabla-Norris, M.E., Kochhar, M.K., Suphaphiphat, M.N., Ricka, M.F. and Tsounta, E., 2015. Causes and consequences of income inequality: a global perspective. International Monetary Fund.
Jaumotte, F., Lall, S. and Papageorgiou, C., 2013. Rising income inequality: technology, or trade and financial globalization?. IMF Economic Review, 61(2), pp.271-309.
Lim, G.C. and McNelis, P.D., 2014. Income inequality, trade and financial openness.
