Documentos de Trabajo Trade Openness and Gender n Uruguay: a CGE Analyss María Inés Terra, Marsa Buchel y Carmen Estrades Documento No. 24/07 Dcembre, 2007
Trade Openness and Gender n Uruguay: a CGE Analyss 1 October 2007 María Inés Terra, Marsa Buchel, Carmen Estrades 2 1 Ths work was carred out wth nancal and scentc support rom the Poverty and Economc Polcy (PEP) Research Network, whch s nanced by the Australan Agency or Internatonal Development (AusAID) and the Government o Canada through the Internatonal Development Research Centre (IDRC) and the Canadan Internatonal Development Agency (CIDA). The authors acknowledge the collaboraton o Rodrgo Cen who partcpated n derent phases o the study. We are very thankul or the comments receved rom Marza Fontana, Wlredo Maldonado, Masakazu Watanuk, André Lemeln and Renato Flores, Bernard Décaluwé, Ismaël Foana, Veronque Robchaud, John Cockburn and Slva Laens. All remanng errors and omssons are our own responsblty. 2 Departamento de Economía, Facultad de Cencas Socales, Unversdad de la Repúblca, Uruguay. E-mal addresses: terra@decon.edu.uy; marsa@decon.edu.uy, carmen@decon.edu.uy.
Abstract In ths paper we analyze the gender derentated mpacts o trade openness n Uruguay usng a gender aware CGE model wth endogenous labor supply and a home producton uncton. We smulate complete trade lberalzaton and an ncrease n tars to the level o 1994. Trade lberalzaton ncreases emale employment and wages, reducng the gender wage gap. These ndngs are consstent wth Çagatay (2001) and Foana et al (2003). The eect o trade openness on tme dstrbuton o workers s derent by sklls. Sklled workers, manly women, reduce tme spent n lesure and domestc work ncreasng labor supply. In contrast, unsklled workers ncrease lesure tme, especally men. Trade openness leads to a more equtable dstrbuton o tme spent n domestc work. When there s a more mperect substtuton among genders n the home producton uncton, women reduce more lesure tme. The ncrease n tar to the level o 1994 has the opposte results. Keywords: trade openness, gender, general equlbrum model, home producton, lesure, wage curve JEL classcaton: D68, D13, J16, J22, F16 Resumen En este trabajo se analzan los eectos derencados por género de una apertura comercal en Uruguay, usando un modelo de equlbro general computable que consdera la dmensón de género. El modelo ncorpora además una oerta de trabajo endógena y una uncón de produccón de benes doméstcos. En el marco de este modelo, se smula una apertura comercal total y un ncremento de aranceles al nvel vgente en 1994. Los resultados muestran que una apertura comercal aumenta el empleo y los salaros emennos, reducendo la brecha salaral de género. Estos resultados son consstentes con Çagatay (2001) y Foana et al (2003). El eecto de una apertura comercal sobre la dstrbucón del tempo de los trabajadores es derente por nvel de calcacón. Los trabajadores calcados, especalmente las mujeres, reducen el tempo dedcado al oco y al trabajo doméstco ncrementando su oerta laboral. Por el contraro, los trabajadores no calcados aumentan el tempo de oco, en especal los hombres. La apertura comercal lleva a una dstrbucón más equtatva del tempo dedcado a tareas doméstcas. Cuando hay una susttucón más mperecta entre hombres y mujeres en la uncón de produccón doméstca, las mujeres reducen en mayor medda el tempo dedcado al oco. Un aumento de los aranceles al nvel vgente en 1994 tene resultados opuestos. Palabras clave: apertura comercal, género, modelos de equlbro general, uncón de produccón doméstca, oco, curva de salaros 1
1. Introducton Uruguay s a small Latn Amercan country that has strong comparatve advantages n agrculture. In the 1990s unlateral trade lberalzaton and ntegraton wth MERCOSUR partners led to a sgncant reducton o protecton to the domestc market. As a consequence, there was a change n relatve prces and a reallocaton o resources rom manuacture to servce sector. Women partcpaton n labor market ncreased, although there s evdence that n 2003 women assgn less tme assgned to labor market than men, whle the opposte happens wth tme assgned to domestc work. Addtonally, some studes conclude that gender dscrmnaton n the labor market perssts. In prncple, a country may benet rom trade openness because t causes an ncrease o trade and productve specalzaton. Productve ecency ncreases due to a better resource allocaton and at the same tme, welare rses through an mprovement o consumpton possbltes. Furthermore, when mperect competton exsts, openness may report addtonal benets through the access to a larger varety n consumpton o derentated goods, the use o economes o scale and the all n prces nduced by the declne o monopoly rents. However, nternatonal trade leads to changes n relatve prces o goods, n relatve demands o productve actors and as a consequence, n ther relatve remuneraton. Ths means that we may expect changes n ncome dstrbuton. In partcular, trade openness may have gender-derentated eects. There are three derent mechansms through whch trade openness aects labor market by gender. Frst, the gender dstrbuton o the mpact n terms o employment wll depend on the sectoral ntensty n the use o male and emale labor. I trade openness benets sectors ntensve n male (emale) labor, men (women) employment wll mprove. The second mechansm stems rom ths eect. Indeed, the changes n the relatve demand by gender aect the earnngs gender gap. Thereore, we may expect that a emale ntensve sectors growth would decrease the gender gap. Anyway, labor dscrmnaton wll contrbute to wden or reduce the eect on the gender gap. A thrd source comes rom the change n labor supply nduced by modcatons n employment opportuntes and wages. Thereore, t s mportant to evaluate the ntra-household reallocaton o resources. Other aspects, such as publc provson o socal servces, mght also be aected, but emprcal studes rarely ocus on them. Most o the emprcal work study whether trade 2
polces aect women s employment relatve to men and the earnngs gender gap. In contrast, evdence about the eects on the tme allocaton among household members s less requent. Some gender-aware CGE models allow to measure these three sources o mpact va ncorporatng a home producton uncton and three actvtes to spend tme n (market work, domestc work and lesure) as proposed by Fontana and Wood (2000). Followng ths strategy, derent results were obtaned or Nepal (Foana, Cockburn and Décaluwé, 2003), South Arca (Foana et al, 2005), Pakstan (Sddqu, 2007), Bangladesh and Zamba (Fontana, 2003), when smulatng an abolton o tars. In the ve countres, tme o women n labor market rses but the gender wage gap decreases only n three o them. The eect on domestc work and lesure s nether conclusve. For example, n Bangladesh, the ncrease n the opportunty cost o workng or women due to the declne o the gender wage gap- leads to some substtuton o male and emale n home producton. In Nepal, n spte o a declne o the gender wage gap, women do not benet wth a reducton o tme spent n domestc work. In act, emale entrance to the labor market s accomplshed wth a decrease o lesure tme as men s lesure tme rses. Thus, trade openness seems to have more equtable eects n Bangladesh. The am o ths paper s to analyze the gender-derentated eects o complete trade openness n Uruguay, ollowng the methodologcal strategy pursued by the above mentoned lterature. Speccally, we study the eects on wages, employment, allocaton o tme between labor market and domestc work, and ncome dstrbuton, usng a genderaware CGE model. The paper s organzed as ollows. Frst, we present an ntroducton to the Uruguayan economy n general and to labor market n partcular. Secondly, we present the model and the data we use. Then, we analyze the results o three derent trade polcy scenaros. Fnally, we draw some conclusons. 2. The Uruguayan Economy 2.1. Trade openness Uruguay s a small country whose populaton - about 3.4 mllon n 2005- lve mostly n urban areas (92 percent). Tradtonally, producton and exports have reled on 3
agrculture, husbandry and meat processng. As many Latn Amercan countres, n the 1990s Uruguay underwent through an mportant process o trade openness and lberalzaton o captal markets. Although the lberalzaton process had started n the 1970s, t deepened n the 1990s. From 1990 to 1995 there was a sgncant tar reducton as a result o unlateral trade lberalzaton and trade ntegraton wthn MERCOSUR (Common Market o the South). The two processes can be easly dented n gure 1, whch presents the average tar protecton wthn MERCOSUR and the average tar appled to the rest o the world. As we can see, the average protecton reduced sgncantly untl 1995. Although n the last ten years the average tar appled to mports rom the rest o the world has not been much moded, the ntra- MERCOSUR tar s practcally zero. 25 Fgure 1. Uruguay: Average tar protecton, 1991-2004 Ad valorem tar 20 15 10 5 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Intra-MERCOSUR Rest o the world Source: Secretaría del MERCOSUR The process o trade openness aected labor market n many ways. Frst o all, there was an mportant restructure o employment. Manuacturng lost mportance both n GDP and employment: whle n 1990 the sector employed 23.3 percent o workers, n 1999 ths percentage ell to 15.9 percent. On the other hand, the share o servces and tradtonal export actvtes n employment ganed mportance. Second, the dsperson o labor earnngs ncreased. One o ts most mportant sources was the rse o the rewards to educaton. As addtonally unemployment and normalty ncreased aectng manly unsklled workers, we may nterpret that the relatve demand or sklled labor has ncreased. Casacuberta and Vallant (2004) argue that ths rse 4
was due to the adopton o new technologes -complementary to sklled labor- that was nduced by trade lberalzaton. 2.2. Gender n the Uruguayan economy Snce the mddle o the 1980s, women s partcpaton n the labor market has had an ncreasng trend meanwhle men s one have presented a lttle declne. Table 1 shows ths evoluton or the group o 18 to 54 years old: emale partcpaton rate rose rom 62 percent n 1986-1990 to 72 percent n 2001-2004 and male rate decreased rom 94 percent to 92 percent n the same perod. Table 1. Labor characterstcs o the group o 18 to 54 years old 1986-1990 1991-2000 2001-2004 Women Partcpaton rate 61.7 68.4 71.9 Unemployment rate 12,3 13,5 19,9 Employment rate 54.1 59.1 57.2 Men Partcpaton rate 94.1 93.3 92.1 Unemployment rate 6,2 7,5 12,0 Employment rate 88.2 86.3 80.9 Wage gap (log derence) * All 0.146 0.098 0.009 Prvate sector 0.273 0.160 0.074 Publc sector -0.170-0.086-0.178 * Only employees (sel-employment excluded) Source: Contnuous Household Survey There are several emprcal works ocusng on emale partcpaton n labor market n Uruguay that conclude that t ncreases wth the educaton level and decreases wth household s ncome and age. Besdes, t s lower or marred women and or women wth lttle chldren, although the lkelhood o partcpaton ncreases when chldren grow (Dez de Medna, 1992; De Sora, Rvas and Taboada, 2001). In a study restrcted to couples, Buchel (2002) ound that emale partcpaton s more lkely or women who lve wth nactve elderly people or whose husband s unemployed. Obvously, tme spent n labor market also depends on the lkelhood o beng employed. As shown n table 1, emale unemployment rate has been persstently hgher than male unemployment n spte o the ncrease o women labor market partcpaton. 5
Unemployment s partcularly hgh or non-sklled women who also suer a relatve hgh duraton o unemployment. Table 1 also reports the raw gender wage gap measured as the derence o the male and emale mean log hourly wage. The gap was postve n 1986-90 and snce then, has had a decreasng trend. In recent years, ts value has been close to zero. In spte o these gures, several studes pont out the presence o gender dscrmnaton n the labor market. Indeed, some Uruguay lterature ollows the sprt o Oaxaca s proposal to measure gender dscrmnaton. Accordng to ths proposal, the raw gender gap may be decomposed n two terms. One o them stems rom the gender derence n endowments and the other one, rom the gender derence n endowments rewards. The latter s a measure o gender dscrmnaton. The broad concluson o Uruguayan studes s that the raw gap cannot be totally explaned by endowments. Thereore, we may nterpret that there s labor market dscrmnaton. Accordng to Buchel and Sanromán (2005) the dscrmnaton measure ncreases throughout the wage dstrbuton. Furthermore, there s a sharp acceleraton n the upper dstrbuton, whch they nterpret as evdence o a glass celng. Rvas and Ross (2000) nd that the declne o the raw gap n the 1990s n the prvate sector was manly due to an mprovement o women s human captal and, n a less extent, to a change n endowments rewards. They conclude that at the end o the decade, dscrmnaton took account or more than 100% o the raw gender gap n the prvate labor market. Ths overall pcture does not t or publc wage earners. Rvas and Ross (2002) compare prvate and publc wage earners n the nnetes and conclude that gender dscrmnaton ncreased or the ormer but decreased or the latter. Furthermore, Amarante (2001) nds that at the end o the 1990s, there was not evdence o dscrmnaton n the publc sector. When employed, women and men present derent dstrbuton among occupatons and ndustres. In broad terms, we may say that women tend to concentrate n ewer jobs than men. Accordng to Amarante and Espno (2001), ths gender dstrbuton among occupatons relects a segregaton phenomenon and n the 1990s, t has had an ncreasng trend n the prvate wage earners labor market. In contrast, segregaton has been lower and stable n the publc sector. 6
Tme spent n non-remunerated work has been less studed than tme n labor market. There s a sngle survey n Uruguay that collects normaton about use o tme, carred out n 2003. Its man gures are reported n Agurre and Batthyány (2005). The survey or tme use does not collect normaton about educaton or ncome o the household. Thus, we match the data provded by ths survey and the Household Survey n order to estmate the amount o hours assgned to domestc and labor market work by gender and educatonal level. The methodologcal aspects about ths match are presented n the Annex 1. In table 2 we show the estmaton o the tme dstrbuton or women and men o 14 to 65 years old. We suppose that people regardless o ther sex or educaton level- assgn 10 daly hours to personal care, that s, a mnmum tme needed or sleepng, eedng, hygene and health care. Accordng to these estmatons, women spend 16% o ther tme n domestc work and 11% n labor market work. The dstrbuton s qute derent or men: the gures are 6% and 20%, respectvely. In contrast, the gender derence n tme assgned to lesure s not so mportant. We also report tme dstrbuton accordng to the worker s level o educaton. Regardless the educaton level, women assgn more tme to domestc work and men spent more tme at market work. Sklled women assgn more tme to market work than unsklled women, but nstead o reducng domestc work tme, they reduce lesure tme. Table 2. Tme assgnment o populaton between 14 and 65 years old by gender. In percentages All Less than 12 years o 12 years o schoolng or schoolng more Men Women All Men Women All Men Women All Market work 20.2 11.1 15.4 19.2 9.3 14.1 23.5 15.3 18.7 Domestc work 5.6 16.2 11.2 5.5 16.7 11.2 5.9 15.1 11.3 Lesure 32.5 31.0 31.7 33.7 32.3 33.0 28.9 27.9 28.3 Personal care 41.7 41.7 41.7 41.7 41.7 41.7 41.7 41.7 41.7 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: Own estmatons based on Survey on the Use o Tme and CHS 3. Model and Calbraton The eects o trade lberalzaton on macro and mcroeconomc varables are estmated usng a CGE model. In ths secton we present an overvew o the model and ts 7
calbraton. The core model s based on Laens and Terra (1999, 2000) and Terra et al (2006). Its structure s qute conventonal n terms o the analyss o trade-related ssues but we work wth alternatve speccatons regardng the labor market n order to take nto account gender ssues. Speccally, we use three derent versons o the model: rst, we dsaggregate male and emale labor demand (model 1), second, we consder male and emale labor supply as endogenous (model 2) and thrd, we ncorporate domestc work n the model (model 3). 3.1. Model The general structure o the CGE model s qute conventonal. Uruguay s assumed to be a quas-small economy (ollowng Harrs, 1984) that has three tradng partners: Argentna, Brazl and the rest o the world. The Uruguayan economy s explctly modeled, whle mport demand rom the tradng partners s assumed to be perectly elastc and export demand presents a downward slope that s a negatve uncton o export prces n Uruguay. We assume perect competton n all sectors, and goods are derentated by geographc orgn (Armngton, 1969). There are ten representatve households accordng to level o ncome. Government collects taxes, pays transers to household and buys goods. Government savngs s obtaned as a resdual. Complete core model and equatons are presented n Annex 2. The model presents two dstnctve eatures. In the rst place, the labor market module ollows a wage curve behavor speccaton, ntroducng unemployment, whch aects only unsklled workers, both men and women. There are derent nterpretatons about the exstence o a negatve relatonshp among wages and unemployment (Blanchlower and Oswald, 1994). One o them s the exstence o ecency wages, pad by rms n order to promote eort or reduce the quttng rate among workers. When unemployment rses the wage needed to promote workers ecency declnes. Secondly, we extend the model n order to allow the ntroducton o gender derences. The prevous CGE model versons dd not dsaggregate labor by gender and assumed labor partcpaton as exogenous. We relax these assumptons by steps as n Foana et al (2003, 2005). 8
Frst, n Model 1 we dsaggregate emale and men labor demand. Ths means to relax the assumpton o perect substtuton between men and women n producton. Followng Fontana (2001) we assume dentcal substtuton elastcty or all sectors. Gender segmentaton n the labor market allows assessng a derentated-gender mpact on wages and employment due to the changes n sectoral structure. There are ve actors o producton: sklled emale labor, sklled male labor, unsklled emale labor, unsklled male labor and captal. As the model has our types o labor, the average wage s a combnaton o sklled emale, sklled male, unsklled emale and unsklled male wage. Followng Laens and Terra (1999), we assume a nested producton uncton. At the top level, a Cobb Douglas uncton combnes ntermedate nputs and value added. At the second level, value added s composed by captal and labor. At the thrd level, labor s a composed actor o sklled and unsklled labor. Fnally, a new equaton that combnes labor by sex n order to get a composte labor by educaton s ncluded n the model. Fgure 2 presents more clearly the nested producton uncton or ths model. Fgure 2. Producton uncton o the rm 9
Labor by gender s combned ollowng a CES uncton: ws s, = In whch g ( wl ws s, g, s,.(1 + tac g, s, )) 1 θg θg. ξg 1/(1 θg ) s the wage or composte labor by sklls, wlg, s, are the wages or each labor type respectvely, tac s the labor tax rate, ξg s the dstrbuton parameter, and θg s the elastcty o substtuton between men and women. Subndex s reers to a subset that ncludes labor categores by sklls (sklled and unsklled), subndex g reers to labor categores by gender (male and emale) and subndex reers to sectors. Then, to get a actor o aggregated labor (l), labor by sklls s combned n the rm s producton uncton ollowng the CES uncton: w l = ( ws s s n whch wl,.) 1 θ. ξ θ 1/(1 θ ) s the wage or aggregated labor, ξ s the dstrbuton parameter and θ s the elastcty o substtuton between labor by skll. In a second step, we relax the assumpton o exogenous labor orce and we ntroduce non-labor market tme, whch s composed by both lesure and domestc work. Thus, Model 2 ntroduces the dea that men and women are not perect substtutes n nonlabor market. As we need to subtract rom the avalable tme the mnmum subsstence volumes o non-market work requred, we ollow Fontana and Wood (2000) who propose to x ths mnmum volume n 10 hours per day. Domestc work at home and lesure are ntroduced n the utlty uncton o the households, but we assume them to be perect substtutes. Each household maxmzes ts utlty subject to a budget constrant, whch ncludes market ncome earned by the household plus non-labor ncome. Utlty uncton s a Cobb Douglas uncton that combnes consumpton o lesure by type o labor (L) and o market goods (C) or each type o household: U = L mal, μ mal, L em, μ em,. C μ From the optmzaton o the utlty uncton, we can derve labor supply equatons (ls lab, ) and nal goods demand o households (c ): 10
ls lab, = max hs lab, μ lab,. y (1 td (1 μ lab lab, )(1 msav ). w lab ) Where max hs lab, s the maxmum hours avalable or lesure and work, and s consdered a xed parameter n the model, y 1 td )(1 msav ) represents households ( avalable ncome and w lab s the wage or each type o labor. c μ. y (1 td )(1 msav ) = (1 μ ). p lab lab, Fnally, Model 3 consders that households use part o ther tme to produce home goods, whch are consumed by themselves. Thus, we dstngush between lesure and domestc work. Addtonally, the model requres xng an elastcty o substtuton between male and emale labor n home producton. Followng prevous works (Fontana and Wood, 2000), we x t at a lower level than the elastcty o substtuton between men and women n labor market, n order to reproduce the rgdty o labor at the household level. In ths case, households utlty s a uncton o the consumpton o market produced goods, home goods (CZ) and lesure. U = L mal, μmal, L em, Labor supply s now: μ em,. CZ μz C μ ls lab, = max hs lab, lz lab, μ (1 lab,. y (1 td μ lab lab, )(1 msav ) μz ). w lab Where lz lab, s the tme used by derent labor categores to domestc work. The nal goods demand o households also changes: c μ. y = (1 (1 td μ lab )(1 msav ) lab, μz ). p And a new equaton that determnes demand o domestc goods s ntroduced: cz μz. y (1 td )(1 msav ) = ( 1 μ, μz ). pz lab lab 11
Home goods are produced and consumed by the same amly. Mnmzng the costs o producton o domestc goods subject to the producton uncton, we obtan the prce o domestc goods (pz ) and the demand o work or producton o domestc goods (lz lab, ): pz = lab αh 1/ ρ + 1 lab,. wl AH ρ / ρ + 1 lab ( ρ + 1) / ρ pz α lz =. AH. QZ h lab, lab, wl lab 1/ ρ + 1 ( ρ / ρ + 1) Where α s the share parameter n the CES producton uncton, AH s the h lab, scale p arameter and ρ = (1- σz )/ σz σz beng the elastcty o substtuton between derent labor categores n the domestc good producton uncton. Fnally, the equlbrum condton n the domestc good market s: QZ = cz In Annex 2 we present the calbraton o parameters o the three versons o the model. The model s run usng sotware GAMS (General Algebrac Modelng System). 3.2. Calbraton We use data or year 2000 to calbrate the model, n the orm o a Socal Accountng Matrx (SAM). Changes to the orgnal SAM are descrbed n detal n Terra et al (2006). Bascally, t has 23 sectors o producton, one beng an normal sector that only produces or domestc market and the other one a publc sector. Then, t has three actors o producton -sklled labor, unsklled labor and captal-, two natonal nsttutons households, presented n ten representatve household accordng to level o ncome, and government- and three tradng partners Argentna, Brazl and the rest o the world. For the purposes o ths paper, we moded the core SAM n order to adapt t to the three speccatons o the model, ntroducng the gender dmensons by steps. 12
As model 1 consders our types o labor, we dstngushed them n the SAM, usng data rom the Contnuous Household Survey or year 2001. The actoral use o the sector s now the ollowng: Table 3. Labor ntensty by sector Sector o actvty Sklled emale Sklled male Unsklled Unsklled (SAM) labor labor emale labor male labor Total Agrculture 3.0 27.6 8.0 61.5 100.0 Husbandry 0.0 0.0 11.5 88.5 100.0 Forestry 13.6 33.7 1.6 51.1 100.0 Other prmary 0.5 2.7 3.9 92.9 100.0 Meat processng 4.3 10.4 21.3 64.0 100.0 Dary products 4.3 10.4 21.3 64.0 100.0 Rce 4.3 10.4 21.3 64.0 100.0 Tannng 2.9 15.6 17.7 63.8 100.0 Wood and paper 0.6 6.8 12.0 80.5 100.0 Chemcals 11.8 33.7 15.6 38.8 100.0 Ceramcs 0.0 0.0 1.8 98.2 100.0 Export actvtes 5.6 11.0 34.3 49.2 100.0 Non tradable actvtes 8.6 23.6 12.2 55.6 100.0 Import actvtes 4.5 14.8 11.3 69.5 100.0 Hotels and restaurants 12.8 9.3 27.0 50.9 100.0 Health 38.5 25.3 26.9 9.4 100.0 Other servces 36.0 39.3 12.2 12.5 100.0 Constructon 3.8 15.9 2.8 77.5 100.0 Renery 12.1 31.6 6.5 49.9 100.0 Gas 13.5 23.0 6.9 56.6 100.0 Trade and transport 7.6 17.6 17.3 57.5 100.0 Inormal actvtes 0.0 0.0 34.4 65.6 100.0 Average 18.3 22.4 16.6 42.7 100.0 Source: SAM There are several male-ntensve actvtes, such as agrculture, husbandry and other prmary actvtes, whle health, export actvtes and other servces employ a hgher percentage o women. In act, emale labor s concentrated n ew sectors, as table 4 shows. The actvty other servces, whch ncludes prvate educaton, servces to rms and domestc servce, concentrates almost 50 percent o total emale labor. Ths gure s even hgher when we consder only sklled emale labor, whle unsklled women are employed n more actvtes, such as normal actvtes, trade and transport (bascally retal) and health. 13
Table 4. Concentraton o emale labor by sector o actvty. In percentage Sector Total emale Sklled emale Unsklled Share o Share o exports labor labor emale labor total exports to Argentna Other servces 49.7 70.8 26.4 5.7 12.0 Health 14.4 16.2 12.4 0.0 0.0 Inormal actvtes 12.3 0.0 25.8 0.0 0.0 Trade and transport 11.0 6.4 16.1 12.6 26.4 Rest o actvtes 12.6 6.6 19.2 81.6 61.6 Total 100.0 100.0 100.0 100.0 100.0 Source: SAM Table 5 presents how labor ncome by decles reles on the derent types o labor. As we can see, the mportance o emale labor ncome s hgher n the decles o mddle ncome, rom the ourth to the seventh decle. Ths s consstent to the act that unsklled women, that are concentrated n the rst decles o ncome, work less, whereas n the rchest households ncome reles more on sklled men. Ths last act may be explaned by the exstence o a glass celng or emale wages. Table 5. Households labor ncome by decles Sklled Sklled Unsklled Unsklled Publc Women Total women men women men labor (%) Frst decle 0.4 0.8 21.4 67.2 10.2 100.0 21.8 Second decle 0.8 1.2 20.7 63.1 14.3 100.0 21.4 Thrd decle 1.2 1.8 20.5 58.7 17.8 100.0 21.7 Fourth decle 2.3 3.2 22.2 53.2 19.1 100.0 24.5 Fth decle 4.0 5.0 21.5 48.7 20.9 100.0 25.5 Sxth decle 6.2 7.1 18.4 44.7 23.7 100.0 24.6 Seventh decle 7.6 10.5 18.1 37.5 26.2 100.0 25.7 Eghth decle 10.2 12.7 15.2 33.7 28.3 100.0 25.4 Nnth decle 13.6 18.8 11.4 24.8 31.4 100.0 25.0 Tenth decle 15.3 28.8 6.2 14.5 35.2 100.0 21.4 Source: SAM Model 2 ncludes also a new actvty: lesure. Followng Fontana and Wood (2000), ths actvty s a cton, assumng that t produces usng only labor, pays to households and produces one type o good that s consumed only by households. In Annex 1 we explan how we estmate tme devoted to lesure by households and labor categores. In order to ntroduce ths data nto the SAM, we valuate tme spent n lesure as the opportunty cost o not workng n the market. For dong so, we calculate the average hour wage or each labor category and each household. Ths s mportant because the average 14
hour wage depends not only on the qualcaton o the worker but also on other varables, such as the socal network o the household. Model 3 separates lesure actvty n lesure and domestc work. Annex 1 also presents the estmaton o tme spent n domestc work. In the SAM, domestc work s also valuated as the opportunty cost o not workng n the market. In terms o market value, tme spent n market work, lesure and domestc work s shown n table 6. It must be notced that n ths case we are not consderng tme n hours but tme valued at the opportunty cost, and or that reason there are sgncant derences wth table 2 3. When we value tme spent n labor market, lesure and domestc work accordng to the opportunty cost, the share o market work or sklled workers s hgher than the estmatons presented n table 2. The opportunty cost or the same category o worker vares accordng to the type o household (dened by decles o ncome). Sklled workers n hgher ncome households obtan hgher wages and assgn more tme at market work. In contrast, sklled workers n lower ncome household obtan lower wages and assgn more tme n lesure and domestc work. Thereore, or sklled workers, total hours spent n market work are n average valuated at a hgher opportunty cost than hours spent n lesure and domestc work. Despte ths, the man conclusons about the tme dstrbuton by gender reman; women spend more tme workng at home whle men spend more tme at market work. Also, unsklled workers spent more tme n lesure. Table 6. Valued tme dstrbuton or each labor category Sklled women Sklled men Unsklled women Unsklled men Market work 34.6 52.2 19.4 39.6 Lesure 41.8 39.3 53.3 51.7 Domestc work 23.6 8.5 27.3 8.7 Total 100.0 100.0 100.0 100.0 Source: SAM 3 Besdes, n table 6 tme spent n personal care s not consdered, and or that reason percentages presented n table 2 are much lower. 15
4. Scenaros and Results 4.1. Smulaton scenaros The am o ths paper s to assess how trade openness aects welare, relatve prces, specalzaton, trade and labor market n Uruguayan economy usng derent speccatons o a CGE model. Wth that n mnd, we smulate three derent scenaros. The rst one assumes a complete lberalzaton o trade wth the rest o the world, whch mples a null tar level or mports comng rom the rest o the world. In the base year, trade wth MERCOSUR s already lberalzed, and tars to mports rom Argentna and Brazl are already zero. Although we are conscous that ths scenaro s qute extreme and s not plausble to happen n the short and medum term, we thnk that t mght provde nterestng nsghts nto how trade openness aects labor market by gender and also allows us to compare the conclusons wth the results rom other studes. The second and thrd scenaros are backwards experments. They smulate a trade closure, by settng tars at the level o 1994, when trade openness was startng to be mplemented n Uruguay. One o these scenaros smulates the tar structure o 1994, and the other one smulates also the exstence o reerence prces n textles. Reerence prces act as tars, so we smulate the equvalent ad valorem tars assocated wth these prces, taken rom Terra et al (2005). Garments and textles are emale labor ntensve, and or that reason we mght expect derent results on gender parameters when we ntroduce reerence prces n these sectors. These two scenaros are analyzed together n order to compare how reerence prces aected labor market n the 1990s. Table 7 presents the tar structure appled n 1994 and the tar structure at the base year (2000) or comparson purposes. Garments and textles are consdered as export actvtes n the SAM used n ths work. When we ntroduce an equvalent tar to reerence prces, the tar appled to mport rom the rest o the world or export actvtes ncreases to 30.5% whle the one appled to mport actvtes ncreases to 14%. 16
Table 7. Ad valorem tars smulated or each sector o actvty Sector o actvty Tar structure n 1994 Tar structure (SAM) at base year Argentna Brazl ROW ROW Agrculture 2.1 2.1 13.7 3.9 Rce 4.5 4.5 17.7 2.4 Ceramcs 5.3 5.3 17.6 12.7 Tannng 0.7 0.6 6 0.1 Export actvtes 6.3 6.4 18.7 12.9 Forestry 0.8 1.1 11.5 7.8 Meat processng 2.5 2.4 15.5 2.0 Husbandry 1.5 1.4 14.2 0.5 Gas 1.7 1.7 15 0.0 Import actvtes 2.9 2.9 13.9 7.5 Dary products 5.6 5.6 16.6 3.8 Wood and paper 6.5 6.5 18.2 5.3 Non tradable actvtes 4.2 4.1 15.2 10.1 Other prmary actvtes 1.1 1.3 12.9 0.2 Chemcals 1.2 1.5 9.3 6.7 Renery 0.7 1.1 10.7 0.5 Other servces 1.1 1.1 13.9 0.0 4.2 Results In ths secton we analyze, rst, the mpact o total trade lberalzaton on macroeconomc and labor market varables, and specalzaton patterns. Then we ocus on the scenaros where trade protecton ncreases. a. Total trade lberalzaton Complete trade openness to the rest o the world has the expected postve mpact on macroeconomc varables. Both exports and mports ncrease by more than 10 percent. Meanwhle, real GDP, absorpton and nvestment rse. However, the mpact s hgher n the models wth endogenous labor supply, especally when we consder Model 3, whch also ntroduces domestc work. Snce exports o Uruguay are relatve ntensve n labor, trade lberalzaton leads to an ncrease o wages and labor supply. Then, GDP and consumpton possbltes ncrease more than n a scenaro where labor supply s xed. 17
Table 8. Impact o trade openness on macroeconomc varables. Percentage change Endogenous labor Exogenous Endogenous supply and home labor supply labor supply producton Absorpton 0.53 0.54 0.70 Household consumpton 0.69 0.69 0.71 Investment 0.16 0.17 1.37 Real GDP 0.78 0.78 0.95 Exports 12.96 12.94 13.28 Imports 10.25 10.24 10.50 Consumer prce ndex -0.13-0.13-0.12 Snce tars appled to mports rom MERCOSUR partners are near to zero, trade lberalzaton aects manly tars appled to the rest o the world (ROW). Then, mports rom ROW show a sgncant ncrease whle mports rom Argentna and Brazl all. Table 8 shows that the ormer ncrease more than 39% and the latter all 22% and 25% respectvely. Uruguayan economy benets rom a sgncant reducton o trade dverson rom MERCOSUR partners. At the same tme exports to all destnatons ncrease, but the rse s hgher or Argentna (almost 15%) and Brazl (around 14%) than or the ROW (less than 12%). Table 9. Impact o trade openness on trade lows Model Trade Flow Argentna Brazl Rest o the world Exogenous labor supply Exports 14.7 13.9 11.4 Imports -22.2-25.2 39.2 Endogenous labor supply Exports 14.8 13.9 11.4 Imports -22.2-25.2 39.2 Endogenous labor supply and Exports 14.8 14.2 11.9 home producton Imports -22.1-25.1 39.5 Table 10 shows relatve ntensty n the use o actors and balance o trade by partners or aggregated sectors 4. As shown, trade patterns wth man commercal partners der substantally. Uruguay has a trade surplus wth Argentna n servces, whch are hghly ntensve n sklled labor, especally emale labor. On the other hand, the country has 4 There are sx aggregated sectors: agrculture and agrondustres, whch comprse prmary actvtes and ood ndustry; mport substtuton manuactures, whch comprse chemcals, paper and ceramcs; exportng manuactures that nclude textles, garments and tannng; tradable servces that nclude servces to enterprses and tourst servces such as transport, hotels and restaurants; non tradable servces, whch are manly health and normal actvtes; and ol and gas. 18
a trade surplus wth Brazl and the ROW manly n agrculture and agrondustres, whch are ntensve n unsklled male labor. Importable manuactures present a smlar actor ntensty pattern. In ths sector Uruguay presents a trade dect wth the three partners. Sector Table 10. Trade balance and relatve ntensty n the use o actors o man sectors at the benchmark Trade Balance Relatve ntensty (mllons o dollars) Sklled Female Sklled Male Unsklled Female Unsklled Male Captal ARG BRA ROW Total Agrculture and agrondustres 0.6 0.8 0.9 1.2 1.0-9 284 587 862 Exportng manuactures 0.5 0.6 1.0 0.7 1.2 10 54 377 441 Import substtuton manuactures 0.8 1.0 0.8 1.1 1.0-383 -322-1,232-1,938 Tradable servces 1.5 1.4 0.8 0.5 1.1 435-24 -162 249 Non tradable servces 2.6 1.4 2.3 1.3 0.6 - - - - Ol and gas 1.0 1.0 0.6 0.8 1.1-29 -8-57 -94 Total 1.0 1.0 1.0 1.0 1.0 23-16 -487-480 Source: SAM As a consequence, the change n trade lows rom lberalzaton leads to a change n relatve actor demand. The ncrease n exports to the three partners generates an ncrease n labor demand and wages or all categores o workers. Ths happens n the three models, as shown n table 11, whch presents changes n labor market varables. Thereore, unemployment alls among unsklled workers. Employment and wages ncrease or both unsklled and sklled workers, except n Model 1, n whch sklled employment does not change because t s assumed xed. Unsklled labor demand ncreases or both genders, but t ncreases more or women. As a consequence, emale unemployment alls more. The all o unemployment ncreases wages because rms are wllng to ncrease the wage premum that they pay n order to promote ecency among workers. The ncrease o wages s hgher or unsklled women than or unsklled men. Thus, the gender wage gap alls. The gender wage gap also alls or sklled workers, because demand or sklled women ncreases more than demand or sklled men. Thus, trade openness reduces the gender wage gap both among sklled and unsklled workers. At the same tme, t wdens the wage gap between sklled and unsklled labor. These two trends can be explaned by the changes n trade lows, whch lead to changes n 19
relatve actor demand. The second trend, the ncrease n the wage premum, s a consequence o the hgher ncrease o exports to Argentna, whch are ntensve n sklled labor, and the sgncant rse o mports rom the rest o the world, whch are ntensve n unsklled male labor. On the other hand, the reducton n the gender gap responds to the act that exports to Argentna are more ntensve n sklled emale labor whle mports rom the ROW are more ntensve n unsklled male labor. Then, emale labor demand ncreases more than male labor demand or both sklls. Table 11. Impact o trade openness on unemployment, employment and wages. Percentage change Skll Gender Exogenous labor supply Endogenous labor supply Endogenous labor supply and home producton Unemployment Unsklled Female -4.30-4.35-4.37 Unsklled Male -4.13-5.22-5.48 Employment Total Female 0.18 0.28 0.25 Unsklled Female 0.34 0.32 0.27 Sklled Female 0.00 0.24 0.23 Total Male 0.21 0.17 0.20 Unsklled Male 0.33 0.19 0.24 Sklled Male 0.00 0.14 0.14 Wages Unsklled Female 0.66 0.67 0.67 Sklled Female 1.01 0.83 0.84 Unsklled Male 0.42 0.54 0.57 Sklled Male 0.94 0.86 0.88 Model 1 does not allow a supply response to the ncrease n labor demand, as labor supply s assumed constant. When we ntroduce an endogenous labor supply n Models 2 and 3, sklled workers ncrease tme spent n the labor market and ther wages ncrease less than n the prevous model. The eect s partcularly mportant among sklled women. Ths stuaton s llustrated n gure 3. The ntal equlbrum locus o wages and employment s represented by pont A. When assumng xed labor supply, the ncrease n labor demand leads to an ncrease o wages rom A to B. In contrast, n Models 2 and 3, labor supply ncreases wth wages. Thus, a sht o the demand means a movement rom A to B. Addtonally, the ncrease o the ncome o the rest o the household, orgnated on the rse 20
o wages and employment, produces a reducton o labor supply. Thereore, the nal equlbrum s reached n C, where employment, labor supply and wages are hgher than n A. Fgure 3. Changes n sklled labor market accordng to model 1 and 2 Wage S D 1 S 0 D S 1 w B w c w B B C B w A A L 0 L C L B Labour In the case o unsklled labor, trade lberalzaton also ncreases labor demand but the changes n labor market cannot be explaned wth the same gure, because we are assumng a wage curve speccaton. Compared to Model 1, wages ncrease slghtly more because unemployment alls more. The all o unemployment s hgher or unsklled men than women, because men reduce labor supply more than women. Ther behavor s consstent wth an ncrease o ther household ncome orgnated n the rse o wages and employment o unsklled labor. Ths eect outstrps a potental ncrease o labor supply orgnated by the rse o ther wages. Table 12 shows the change n the use o tme by worker categores. Sklled workers ncrease labor market supply and reduce tme spent n domestc work and lesure, whch s consstent wth the rse o ther wages. The behavoral reacton s deeper among women. Speccally, ther ncrease n the labor market supply s qute hgher than or men. Unsklled workers behave derently. Both men and women reduce ther labor market oer, because, as already explaned, total ncome o the household ncreases. As a consequence, unsklled workers ncrease lesure and domestc work, but the eect s more mportant or men. 21
Assumng that households are composed by men and women o the same skll, trade openness generates an ntra-household tme reallocaton, makng men dedcate more tme to domestc work actvtes and thus mprovng equty wthn households. In spte o ths, sklled women lose a hgh percentage o lesure tme. Table 12. Impact o trade openness on tme dstrbuton or each labor category. Percentage change. Model wth endogenous labor supply and domestc work Labor supply Lesure tme Tme spent n domestc work Sklled emale workers 0.23-0.13-0.10 Sklled male workers 0.14-0.16-0.12 Unsklled emale workers -0.08 0.02 0.01 Unsklled male workers -0.19 0.13 0.09 Under a trade openness scenaro, all types o households ncrease ther ncome (table 13). The rchest households are the most beneted. Ths s a result o the relatve ncrease o sklled wages and employment. Imports ncrease manly n sectors ntensve n captal and unsklled labor whle exports ncrease more n sectors ntensve n sklled labor. Although ths would be a rough measure o ncome dstrbuton we can say that trade openness could lkely generate a general welare mprovement but at the same tme t would ncrease nequalty. Table 13. Households ncome varaton. Percentage change Exogenous labor supply Endogenous labor supply Endogenous labor supply and home producton Frst decle 0.64 0.64 0.66 Second decle 0.66 0.65 0.67 Thrd decle 0.66 0.65 0.67 Forth decle 0.68 0.68 0.70 Fth decle 0.69 0.69 0.70 Sxth decle 0.68 0.68 0.70 Seventh decle 0.67 0.67 0.69 Eghth decle 0.67 0.67 0.69 Nnth decle 0.69 0.70 0.71 Tenth decle 0.73 0.74 0.74 22
b. Backwards experments The backwards experments may be useul to test whch o the stylzed acts o the Uruguayan economy and labor market rom 1994 to 2000 can be explaned by trade openness to the regon and the world. Under ths scenaro, we smulate an ncrease n tars appled to mports rom the three partners, but tars are hgher or mports rom the ROW, as already shown n table 7. Table 14 shows that the ncrease n protecton has the opposte eect on macroeconomc varables compared to the trade openness scenaro. Tars ncrease more or mports rom the ROW, and then mports all, manly rom ths orgn. Table 14. Impact o trade protecton on macroeconomc varables. Percentage change. Exogenous labor supply Endogenous labor supply Endogenous labor supply and home producton Tar structure n 1994 Absorpton -0.48-0.41-0.59 Household consumpton -0.55-0.49-0.51 Investment -0.57-0.32-1.66 Real GDP -0.70-0.62-0.81 Exports -13.12-13.09-13.43 Imports -10.55-10.52-10.80 Consumer prce ndex 0.11 0.12 0.10 The mpact on labor market s also the opposte than under the trade openness scenaro (see table 15). Labor demand decreases or all categores o workers, especally or men. Unemployment rses, employment decreases and wages go down. However, labor supply ncreases n the models where t s assumed to be endogenous. Ths happens because the all n wages reduces the household s ncome; then the postve eect on labor supply prevals over the negatve mpact o wages. As a consequence wages all more than n the xed labor supply model. In the case o unsklled labor, unemployment ncreases more, both or men and women. Because there s no unemployment among sklled workers, the rse n labor supply leads to an ncrease n employment but a deeper all n wages. Ths s partcularly mportant or women whose labor supply ncreases more. As a consequence the gender gap ncreases, especally or sklled women. 23
Table 15. Impact o trade protecton on unemployment, employment and wages. Percentage change. Tar structure o 1994 Skll Gender Exogenous labor supply Endogenous labor supply Endogenous labor supply and home producton Unemployment Unsklled Female 2.82 3.15 3.23 Unsklled Male 4.42 4.46 4.86 Employment Total Female -0.12 0.11 0.14 Unsklled Female -0.23-0.11-0.05 Sklled Female 0.00 0.35 0.35 Total Male -0.22-0.05-0.09 Unsklled Male -0.35-0.26-0.32 Sklled Male 0.00 0.29 0.28 Wages Unsklled Female -0.42-0.46-0.48 Sklled Female -0.09-0.30-0.31 Unsklled Male -0.43-0.44-0.47 Sklled Male -0.02-0.17-0.20 Table 16 shows what we have already explaned: the rse o labor supply, especally among sklled workers. Unsklled emale workers ncrease tme spent n labor market more n the experment wth reerence prces, because o the ncrease n unsklled emale labor demand n the protected sector. Tme spent n domestc work alls or all types o labor categores, deepenng the negatve mpact o the wage all. Table 16. Change n the use o tme or each labor category Tar structure o 1994 Labor Tme spent n Lesure tme supply domestc work Sklled emale workers 0,35-0,19-0,17 Sklled male workers 0,28-0,31-0,26 Unsklled emale workers 0,19-0,04-0,05 Unsklled male workers 0,07-0,04-0,06 Lastly, we can see n table 17 that ncome alls or all types o households, but alls more among the rchest households, especally n the rst speccaton o the model, because employment among sklled workers s consdered as xed. 24
Table 17. Households ncome varaton. Percentage change Exogenous labor supply Endogenous labor supply Endogenous labor supply and home producton Tar structure n 1994 plus reerence prces n textles Frst decle -0,50-0,48-0,51 Second decle -0,54-0,51-0,53 Thrd decle -0,54-0,50-0,53 Forth decle -0,58-0,53-0,56 Fth decle -0,58-0,53-0,55 Sxth decle -0,56-0,51-0,53 Seventh decle -0,52-0,47-0,49 Eghth decle -0,50-0,45-0,47 Nnth decle -0,52-0,46-0,48 Tenth decle -0,59-0,52-0,53 When we smulate an addtonal ncrease n protecton due to the ntroducton o reerence prces or textles and garments, the macroeconomc mpact s very smlar to the results presented n table 14, but deeper. Table 18 presents the mpact on labor market. It should be noted that the ntroducton o reerences prces n order to protect emale employment (textles and garments) does not contrbute to mprove emale condtons n labor market. On the contrary, emale wages all more than male ones, because the sectors that are beng protected are export sectors, and even when protecton does reduce mport competton, the negatve mpact on exports s even hgher when the polcy s mplemented. Table 18. Impact o trade protecton on unemployment, employment and wages. Percentage change. Tar structure o 1994 plus reerence prces n textles and garments Skll Gender Endogenous labor Exogenous Endogenous supply and home labor supply labor supply producton Unemployment Unsklled Female 2.83 3.31 3.37 Unsklled Male 4.76 4.79 5.20 Employment Total Female -0.12 0.11 0.15 Unsklled Female -0.23-0.09-0.02 Sklled Female 0.34 0.34 Total Male -0.24-0.07-0.12 Unsklled Male -0.12-0.29-0.35 Sklled Male 0.28 0.26 Wages Unsklled Female -0.42-0.49-0.50 Sklled Female -0.13-0.34-0.35 Unsklled Male -0.46-0.47-0.51 Sklled Male -0.08-0.22-0.25 25
5. Senstvty analyss Results obtaned may be senstve to changes n some o the parameters adopted n the study. In order to test how senstve results are, we run three derent senstvty analyses and a new backwards scenaro that smulates the break o MERCOSUR agreement through an ncrease n tars appled to mports rom MERCOSUR countres. 5.1. Changes n elastcty o substtuton by gender n the producton uncton In the model, the elastcty o substtuton among men and women n the producton uncton o all products s the same, at the value o 1.1. However, t may be assumed that n some sectors the substtuton among men and women s more mperect, such as n the constructon sector, where only 6 percent o workers are women. Thereore, we run a senstvty analyss allowng the value o the elastcty o substtuton among men and women n the producton uncton to vary among sectors. Even though there s no estmaton o ths elastcty, we assume that sectors that at the benchmark present a hgh ntensty n the use o male or emale labor (over 80 percent) present an mperect substtuton among labor by gender and the elastcty was set at 0.1. Then, other sectors present a medum ntensty (between 70 and 80 percent), and the elastcty was set at 0.3. Fnally, sectors that hre both male and emale labor mantan the elastcty value o 1.1. Table 19 shows the values adopted or each sector. Table 19. Elastcty o substtuton among workers by gender Elastcty o substtuton Low Medum Hgh Agrculture, Husbandry, Forestry, Other prmary, Wood and paper, Ceramcs, Constructon, Renery, Import actvtes Meat processng, Dary products, Rce, Tannng, Non tradable actvtes, Gas, Trade and transport Chemcals, Export actvtes, Hotels and restaurants, Health, Other servces, Inormal actvtes Table 20 shows the mpact o trade openness n Model 3 (endogenous labor supply and home producton) on employment and wages when the elastcty o substtuton by gender vares among sectors. We can see that there are no sgncant derences wth the results presented n the prevous secton. Although emale employment ncreases more and male 26
employment ncreases less, the derences are very slght. The man concluson that trade openness reduces the gender gap remans. Table 20. Impact o trade openness on unemployment, employment and wages Skll Gender Elastcty equal n all sectors Elastcty derent n some sectors Unemployment Unsklled Female -4.37-4.40 Unsklled Male -5.48-5.46 Employment Total Female 0.25 0.26 Unsklled Female 0.27 0.29 Sklled Female 0.23 0.22 Total Male 0.20 0.20 Unsklled Male 0.24 0.23 Sklled Male 0.14 0.14 Wages Unsklled Female 0.67 0.68 Sklled Female 0.84 0.84 Unsklled Male 0.57 0.56 Sklled Male 0.88 0.88 5.2 Changes n the elastcty o substtuton n the home producton uncton Substtuton among men and women n domestc work may also be assumed as mperect. In the model, ths mperecton s relected n the domestc good producton uncton, whch s a CES wth an elastcty o substtuton set at 0.7. In ths secton we run a senstvty analyss changng ths parameter to a lower value (0.2) and a hgher value (1.2). Ths elastcty may change the mpact on the tme dstrbuton by gender. Table 21 presents the mpact o trade openness on tme dstrbuton by gender wth the three values o the elastcty adopted. 27
Table 21. Impact o trade openness on tme dstrbuton o workers, wth derent elastcty o substtuton value n the domestc producton uncton Tme spent Labor Lesure tme n domestc supply work Elastcty = 0,2 Sklled emale workers 0.21-0.15-0.05 Sklled male workers 0.13-0.17-0.06 Unsklled emale workers -0.07 0.02 0.01 Unsklled male workers -0.18 0.13 0.03 Elastcty = 0,7 Sklled emale workers 0.23-0.13-0.10 Sklled male workers 0.14-0.16-0.12 Unsklled emale workers -0.08 0.02 0.01 Unsklled male workers -0.19 0.13 0.09 Elastcty = 1,2 Sklled emale workers 0.24-0.12-0.14 Sklled male workers 0.15-0.16-0.18 Unsklled emale workers -0.08 0.02 0.02 Unsklled male workers -0.19 0.12 0.15 Trade openness ncreases sklled emale labor demand and wages, and sklled women are tempted to ncrease labor supply. However, when the substtuton n the domestc good producton among genders s more mperect, sklled women ncrease labor supply less, and they are not able to reduce tme spent n domestc work as much as they would lke. In order to ncrease tme spent n labor market, they must reduce lesure tme. A more perect substtuton o workers by gender n the home producton uncton also benets unsklled women, because unsklled men ncrease more tme spent n household actvtes under ths assumpton. 5.3. Maxmum tme avalable or work, domestc work and lesure In the model we assume that the maxmum tme avalable or work, domestc work and lesure s 14 hours per day or both genders. The rest o the hours o the day are supposed to be the mnmum necessary or sleep, eat, etc. We mght assume however that women count wth ewer hours to reely dstrbute between the derent actvtes, because o the rgdty o some tasks at home, such as chldcare, eldercare, etc. In order to assess the mpact o ths gender rgdty at home, we assume that women count wth ewer hours per day to work at 28
labor market, at home and to spend n lesure actvtes, settng the maxmum tme avalable or women at 10 hours. Results on tme dstrbuton are, as expected, partcularly mportant among women. When sklled women ace a restrcton on the maxmum avalable hours to spend n the three actvtes, they ncrease tme spent n labor market, but less. Lesure tme and domestc tme all more because the orgnal amount o hours at the base year s lower. On the other hand, unsklled emale workers reduce labor supply less, whle they ncrease more tme spent n lesure and n domestc actvtes. Table 22. Impact o trade openness on tme dstrbuton o workers, wth derent avalablty o hours per day or women and men Tme spent Labor supply Lesure tme n domestc work MAXHS= 10 (WOMEN) Sklled emale workers 0.17-0.18-0.13 Sklled male workers 0.14-0.16-0.12 Unsklled emale workers -0.06 0.03 0.02 Unsklled male workers -0.19 0.13 0.09 MAXHS= 14 Sklled emale workers 0.23-0.13-0.10 Sklled male workers 0.14-0.16-0.12 Unsklled emale workers -0.08 0.02 0.01 Unsklled male workers -0.19 0.13 0.09 5.4. Break o MERCOSUR agreement Trade openness scenaro smulates lberalzaton only wth the ROW, because n the benchmark tars to MERCOSUR mports are already zero. Thereore, we cannot smulate the gender-derentated eects on employment, wages and tme allocaton o lberalzaton wth MERCOSUR partners. In ths secton we present results o a new backwards experment, whch smulates an ncrease o tars to MERCOSUR partners, usng the same tar structure at the benchmark appled to mports rom the rest o the world. In order to analyze the eects o trade openness wth MERCOSUR partners, sgns obtaned should be nterpreted as the opposte. Table 23 presents the mpact on trade by partner. We can expect that trade lberalzaton wth MERCOSUR partners leads to a hgh ncrease o trade wth the regon, reducng mports rom the ROW. 29
Table 23. Impact on trade lows rom an ncrease n protecton to mport orm MERCOSUR Scenaro Trade Flow Argentna Brazl Rest o the world Increased protecton to MERCOSUR Exports Imports -8,0-7,7-6,5-28,3-35,8 16,3 Increased protecton to Argentna Increased protecton to Brazl Exports -4,0-4,0-3,2 Imports -32,7 8,0 7,6 Exports -3,6-3,4-2,9 Imports 6,6-40,6 7,1 Table 24 presents the mpact o ths smulaton on the labor market n the Model 3. Trade openness wth MERCOSUR partners has a smlar mpact than trade openness wth the rest o the world. Labor demand ncreases, especally or emale and sklled workers. However, the magntude o the mpact s smaller than the results presented n table 11. Table 24. Impact o trade protecton rom MERCOSUR on unemployment, employment and wages. Percentage change. Skll Gender Increased protecton to MERCOSUR Increased protecton to Argentna Increased protecton to Brazl Unemployment Unsklled Female 2,04 1,07 0,90 Unsklled Male 2,21 1,23 0,95 Employment Total Female -0,17-0,08-0,08 Unsklled Female -0,18-0,09-0,08 Sklled Female -0,15-0,07-0,07 Total Male -0,06-0,04-0,03 Unsklled Male -0,05-0,04-0,02 Sklled Male -0,08-0,03-0,04 Wages Unsklled Female -0,30-0,16-0,13 Sklled Female -0,40-0,20-0,18 Unsklled Male -0,22-0,12-0,09 Sklled Male -0,22-0,11-0,10 30
6. Concludng remarks In the 1990s the Uruguayan economy deepened trade openness. At the same tme a reallocaton o employment towards servces sector, an ncrease n wage gap by skll, an ncrease o unemployment and normalty took place. Female partcpaton n labor market grew and dscrmnaton ncreased. In ths paper we analyze the gender derentated mpacts o trade openness n Uruguay usng a gender aware CGE model. Two man smulatons were mplemented. Frst, complete trade lberalzaton elmnatng tars wth the rest o the world. Second, a backward experment that sets tar to the level o 1994. Trade lberalzaton mproves women stuaton n terms o employment and wages. Ths s consstent wth Çagatay (2001) and Foana et al (2003), who conclude that trade openness has a postve mpact on emale employment n sem-ndustralzed countres. The gender wage gap s reduced among sklled workers and unsklled workers. Addtonally, the premum or educaton ncreases. Sklled workers are most beneted because exports to Argentna, whch are ntensve n ths actor, ncreases more than exports to other partners. Among sklled workers, emale employment and wages ncrease more. Unsklled women are also better o than unsklled men. These results are consstent wth some o the stylzed act mentoned beore. Trade lberalzaton ncreases demand o sklled and emale labor. However, the model shows a decrease o unemployment whle n acts t grew. Ths nconsstence shows one lmtaton o our model, whch does not consder changes n technology. In act, n the 1990s there was a strong ncrease n productvty n Uruguay, whch was partly due to an unsklled labor savng technologcal change. The paper also shows that t s mportant to ntroduce endogenous labor supply n the model. When dong so, some o the results obtaned n the model wth a xed labor supply vary. The ncrease n labor supply provoked by the ncrease n wages or sklled workers generates a lower ncrease n wages. On the contrary, unsklled workers reduce labor supply, whch leads to a hgher decrease n unemployment and a hgher ncrease n wages. The eect o trade openness on tme dstrbuton o workers s derent by sklls. When wages ncrease, sklled workers reduce tme spent n lesure and domestc work, 31
because they ncrease tme spent n labor market. The reducton o lesure tme s hgher or women than or men. On the contrary, unsklled workers ncrease lesure tme, especally men. For both sklled and unsklled workers, trade openness leads to a more equtable dstrbuton o tme spent n domestc work. However, when there s a more mperect substtuton among genders n the home producton uncton, trade lberalzaton leads to an ncrease n sklled emale labor supply at the expense o a hgher reducton n lesure tme. The smulaton o a backwards experment that sets the tar structure o 1994 has the opposte results than the trade openness scenaro: employment and wages go down, unemployment ncreases and the gender wage gap ncreases or both sklls. These results, wth a hgher magntude, are smlar to results obtaned when we smulate a breakng o MERCOSUR agreement. We also show that a specc polcy to protect a emale ntensve sector, the ntroducton o reerence prces n emale ntensve sectors, has a negatve eect on emale wages and employment, because o ts negatve mpact on exports. Our results should be treated careully, because the sectoral aggregaton o our SAM does not allow consderng separately those sectors that present more segregaton by gender, specally garments, textles and domestc servce. 32
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Annex 1: The estmaton o the dstrbuton o tme Inormaton about the tme devoted to home producton s avalable n a unque tme use survey EUS (Encuesta sobre Uso del Tempo y Trabajo No Remunerado) carred out by the Department o Socology o the FCS-UdelaR. The survey was collected over our months n 2003 n the cty o Montevdeo and ts metropoltan area. Ths regon concentrates 59% o the urban populaton that n turn s 95% o total populaton. The observaton unt s the household and the sample sze s 1.200 households. The respondent s the person responsble o the household tasks: 84% o the respondents are women and 16% are men. Agurre & Batthyány (2005) present more normaton about the characterstcs the survey and analyze the man results. The survey nqures about several personal characterstcs o the members o the household, such as the relatonshp wth the respondent, sex and age. A set o questons collects normaton about characterstcs o the labor market partcpaton o all the members: hours o work, commutng tme, occupaton, etc. The most mportant eature o the survey s that t seeks to denty and quanty the man types o labor that people over 14 years old engage. The questonnare oers a lst o tasks and the respondent has to norm the tme spent n each task the week prevous the ntervew. Addtonally, she has to report the dstrbuton among the household members o the whole tme spent n each task. Notce that ths second queston s asked only when the respondent actually does the task. In order to estmate tme spent n domestc work, we consder the ollowng tasks: to buy ood and home urnshng; to take care o pets and plants; to organze and dstrbute household tasks; several tasks related to chld care (to eed chldren, to take them to school, to play wth them, to help them wth ther homework, to bath them, to make them sleep); to take care o the elder (to help them n many way, to gve them ther medcnes and to accompany them). We do not nclude some tasks because ts low requency: to buy and mend clothes; to repar the house or home urnshngs; to go to do some errands or the home. The tme spent n each task s collected n a table. The tasks appear n the rows and the columns dstngush the members o the household. As just one column s used or the chldren o the respondent, t s not possble to know the sex o every person. Speccally, there s a problem when the respondent has at least two chldren o derent sex. In these 35
cases we assgn the average o tme to each chld older than 14 years old. As there s also only one column to report normaton about the mother and mother-n-law o the respondent, we proceed analogously. The same happens wth the ather and ather-n-law. Another dsadvantage o the data s that the survey does not nqure about the tme dstrbuton o the tasks that the respondent does not do. Thus, each task that s responsblty o another member o the household s not consdered. As 84% o the respondents are women, we may expect to observe mssng normaton about tme dstrbuton o tasks tradtonally consdered male tasks. Ths appears to be the case o reparng the house or home urnshng whch consequently has been dropped o the nstrumental denton o domestc work. The calbraton o the CGE model requres dsaggregatng domestc work between categores that take nto account sex, educaton and ncome o the household. As the EUS does not nqure about the last two varables, we assgned the normaton about domestc work provded by ths survey to the Household Survey (ECH) mcrodata collected n 2001 by INE. Notce that we use the ECH o 2001 or the calbraton o other CGE model varables. We pursue the ollowng procedure. Frst, we t a model based on the ndvdual EUS data to explan the tme spent on domestc work. Then, then we apply the estmated coecents to mcrodata o the ECH. In order to estmate the coecents we use a Generalzed Lneal Model. The dependent varable s the amount o tme spent on domestc work by the ndvdual. The ndependent varables are chosen between the set o potental determnants that are collected both n the EUS and the ECH. The explanatory varable are: ) a dummy varable that takes value 1 when the ndvdual works n the labor market; ) the amount o hours spent n the labor market the week prevous to the ntervew; ) the age and ts square; v) a dummy varable that takes value 1 there s a woman (other than the ndvdual) older than 13 years old; v) a prvaton ndcator; v) sze o the household; v) number o household members less than 14 years old. The prvaton ndcator stems rom a prvaton ndex that weghts the lack o some condton that relects a lack o status. Among the plausble condtons to be consdered, we choose a set o goods whose possesson s collected n both EUS and ECH: water-heater; heater; rdge; televson set n colors; pay channel televson; washng 36
machne; dshwasher; mcrowave owen; personal computer; access to nternet; car o personal use; telephone. The weghts relect that the hghest the percentage o people who possess the good, the hghest the eelng o prvaton -thus, the hghest the prvaton ndex-. We t a model or men and a model or women. The results appear n Table A1. Table A1. Results o the GLM estmaton. Dependent varable: tme spent n domestc work. Women Men Worker (value 1 worker) -13,057 ** 3,534 4,143 3,378 Hours spent n labor market -0,011-0,180 * 0,096 0,053 Age 3,083 * 1,543 * 0,272 0,251 Age squared -0,032 * -0,017 * 0,003 0,003 Another women (a) -19,484 * -45,508 * 2,710 9,680 Prvaton ndex 10,051 ** 1,030 4,080 3,082 Household sze -4,359 * -4,971 * 0,839 0,445 Number o members less than 14 years old 2,381 ** 0,820 1,049 0,974 Constante -1,908 47,731 * 5,913 11,285 (a) Takes value 1 there s a woman (other than the ndvdual) older than 13 years old * 99%; ** 95% 37
Annex 2: Core model and calbraton o parameters The CGE model s based on Terra et al (2006). Its structure s qute conventonal n terms o the analyss o trade-related ssues but we work wth alternatve speccatons regardng the labor market n order to take nto account gender ssues. Speccally, we use three derent versons o the model: rst, we dsaggregate male and emale labor demand (model 1), second, we consder male and emale labor supply as endogenous (model 2) and thrd, we ncorporate domestc work n the model (model 3). The man eatures o the CGE model (model 0) are: It s a mult-sector model, ncludng two specal cases. In one o them we assume that employment and wages are xed: ths sector gathers all the actvtes n whch nsttutonal arrangements and/or trade unons are a deterrent to workers dsmssal or to wage reductons (manly, publc servces and the nancal sector). The other one conssts on an normal sector that produces one type o good destned only to domestc nal consumpton. We assume that Uruguay has three tradng partners (Argentna, Brazl and the rest o the world). The Uruguayan economy s explctly modeled whle n the case o the other tradng partners only the supply o mports and the demand or exports are endogenous. Perect competton s assumed n all sectors. However, goods are not homogenous, as they are derentated by geographc orgn. We assume that there are ten representatve households whch represent derent ncome levels (by decles o the ncome dstrbuton). Government collects tars and taxes. Government revenue s used to buy goods and servces and to make transers to households. We assume that government has xed consumpton o goods and servces (n physcal unts) and the transers to households are updated by the change n the average wage. Government savngs s obtaned as a resdual. On the producton sde, the study uses a nested producton uncton. At the top level, rms combne ntermedate nputs wth value added ollowng a Cobb- Douglas uncton. Value added s obtaned wth a constant elastcty o substtuton (CES) uncton that combnes captal and composte labor. Then, composte labor s 38
obtaned by combnng sklled and unsklled labor wth a CES. In the normal sector, value added s only composed by unsklled labor. Goods are mperect substtutes n consumpton (Armngton). The small country assumpton s made or mports, so the country aces a perectly elastc supply curve n the external markets. However, t s assumed that the country aces a downward slopng demand curve or exports (quas small open economy) 5. Export demand s a uncton o relatve prces and real ncome n the trade partners, whch are consdered exogenous. Total demand or each sector s composed by domestc demand (ntermedate and nal) plus exports to each o the tradng partners. Trade balance s xed so mports and exports o goods and servces mantan the benchmark data s derence. The equlbrum n the model s dened by the smultaneous equlbrum n goods and actor markets and n the external sector. There are three actors o producton: captal, sklled labor and unsklled labor (n urther speccatons o the model labor market s also segmented by gender). The supply o each actor s xed and there s no nternatonal moblty. Sklled labor s employed only n the ormal sector. Unsklled labor may be employed n the ormal or the normal sector. Unemployment s xed. The model was run usng GAMS (General Algebrac Modelng System). Equatons Frst we present all the equatons o the basc model (model 0). Then we wll specy the man characterstcs o the three versons o the model: Model 1: Dsaggregatng labor demand by gender Model 2: Endogenous labor supply and lesure Model 3: Endogenous labor supply and domestc work 5 Followng Cox s speccaton (1994). 39
Lower onts ndcate endogenous varables, captal onts reer to exogenous varables and Greek letters ndcate parameters. The subscrpts, j reer to sectors, the subscrpts z, t reer to geographc zones, the subscrpts reer to representatve households grouped accordng to ncome levels, the subscrpts k reer to plus government and the subscrpt h reers to actors o producton as ollows:, j = {1, 2,, J} z = {Uruguay (u), Argentna (a), Brazl (b), rest o the world (r)} t = a, b, r = (1, 2, 3, 4, 5, 6, 7, 8, 9, 10) K = (1, 2, 3, 4, 5, 6, 7, 8, 9, 10, g) H = (SL, NSL, CAP) Where SL reers to skll labor, NSL reers to unsklled labor and CAP reers to captal. We can dene a subset LAB o actors H: LAB = (SL, NSL) 1. Demand Structure Demand unctons are derved rom a Cobb Douglas utlty uncton whch s an ncreasng uncton o consumpton o composte goods that combnes derent varetes o derentated goods. In turn, the sub-utlty unctons ollow an Armngton speccaton (1969) n perect competton sectors. In the perectly compettve sectors, goods are derentated by geographc orgn. Consumers maxmze a Cobb Douglas utlty uncton subject to ther budget constrant. As such, demand or each good s stated thus: c y (1 td )(1 msav ) = μ. (1) p where c s the demand or a composte nal good (derentated by geographc orgn), y s the total ncome o a representatve household n Uruguay, td s the drect tax rate, msav s the margnal propensty to save and p s the composte prce ndex. Ths ndex can be wrtten as: 40
p z p z 1 ( ) 1/(1 φ ) φ φ = λ (2) z beng λ z the share parameter n the Armngton uncton, Ф the elastcty o substtuton between goods rom derent orgn and p z the market prce o good rom market z. Investment demand o good s a xed share o total nvestment I: c nv = μ nv I p (3) Fnal demand o a derentated good produced n country z by an nsttuton k s: d zk φ φ p z = λ z.. c k p (4) where d zk s the nal domestc demand o nsttuton k. The export demand or a representatve domestc rm s a decreasng uncton o the export prce: e z. η e. 0 z pz Rt = (5) η ER. pd z where e z s the demand or a varety o the derentated good n market z, p z s the export prce rom Uruguay, pd z s the domestc prce ndex o good n market z, R t s the real ncome o the partner t, ER s the exchange rate and e oz s a parameter. 2. Producton Each sector combnes prmary actors and ntermedate nputs ollowng a Cobb- Douglas producton uncton. The value added s a nested CES producton uncton combnng sklled labor, unsklled labor and captal. 3. Cost Total varable cost s derved rom a Cobb-Douglas constant return to scale producton uncton. The varable unt cost s: v 1 ( ( + )) α j vc 1 tnd j = ω. j v α j j (6) 41
where v s the varable unt cost, vc s the value added cost and v j s the composte prce o ntermedate nputs. α j s the dstrbuton parameter o a Cobb-Douglas producton uncton, tnd s the value added tax rate and ω s a parameter. In turn, value added s a combnaton o labor and captal speced as a CES. Thus, vc s: vc σ (1 σ ) σ (1 σ ) 1/(1 σ ) [( 1 δ ). r + δ. w ] = (7) where r and w,, are the rental rate o captal and the average wage, δ s the dstrbuton parameter o the CES uncton or value added, whle σ s the elastcty o substtuton between captal and labor. As the model consders two types o labor, the average wage s a combnaton o sklled and unsklled wage. It s assumed that sklled labor and unsklled labor are combned ollowng a CES uncton, so the average wage s: θ 1/(1 ) 1 θ θ 1 θ θ [( 1 ξ ).( wu) + ξ. ws 1 w =. ] (8) ϕ where w s the average wage, wu and ws are the unsklled and the sklled wages, respectvely, ξ and ϕ are the dstrbuton and scale parameters, and θ s the elastcty o substtuton between sklled and unsklled labor. The ntermedate nputs are derentated by geographc orgn wth an Armngton ormulaton. The composte prce o ntermedate nputs s: 1 ( ) 1/(1 φ ) j φ j φ j v j = γ zj. pzj (9) z where p zj s the prce n the local market o nput j used n sector n each zone, γ zj s the CES dstrbuton parameter and φ j s the elastcty o substtuton between goods rom derent orgns. 4. Input and actor demand by rm Frms maxmze ther prots so demand or ntermedate nputs and value added (labor and captal) n each sector s obtaned rom ther maxmzaton program: x zj α j. v = v j pzj γ zj. v j φ j (10) 42
where x zj s the demand or nput j comng rom country z and used by sector or each rm n sector. It s a decreasng uncton o the nput prce. Valued added demand s a decreasng uncton o the value added cost and an ncreasng uncton o the untary cost and output n each sector: va = v q v α (11) vc ( 1 + tnd ) Factor demand s a decreasng uncton o the return rate and s an ncreasng uncton o value added and ts prce: d w σ h h =. va (12) δ h. vc Fnally, labor demand equatons are the ollowng: θ wlab (1 taclab) + lab, =. dl ξ. w (13) l, l 5. Domestc prcng In the perect compettve sectors, the equlbrum prce o output s equal to ts varable unt cost (v ): u ( tex p = v 1 + ) when = compettve sectors (14) where the lower case u reers to Uruguay, and tex s the excse tax pad by sector. The rms charge the same prce n domestc and oregn markets. 6. General Equlbrum Publc servces x prces, wages and employment whereas producton level and captal demand s endogenous. Income o the households s endogenous and s the sum o the returns to actors o producton and transers rom the government: y = ( l. w + k. r ). + tr wglg (15) + Government ncome s the sum o the recepts o tar collecton, ndrect taxes and prots rom publc rms: y g = ( l. w + k. r ). tnd + ( π ). + τ zd znz pz. + nu τ zj xzj. nzj. p (16) zj z z j 43
Government expendture s the sum o household transers, publc wages and government consumpton: GE = tr + d zg p z + wglg (17) where GE s the government expendture, d s the government consumpton o good, whch s a xed coecent, wg s the publc wage and lg s publc employment, both xed. Government savngs s the derence between government ncome and expendture: SG = y GE (18) G It s assumed as endogenous. The equlbrum condton n the labor market s: LS lab = l lab, (19) where LS s the supply o labor, whch s exogenous. The equlbrum equaton or captal s: K = k (20) where K s captal supply (exogenous). When actors are assumed to be sector specc there s one equlbrum condton or each actor and sector, but when actors are assumed perectly moble there s only one equaton or each actor. n each sector: The equlbrum condtons n the goods market requre that supply equals demand q = d + x + e (21) u j uj Fnally, the external equlbrum s: t t t. e. p ER d p n x. p B (22) t u t ZI u tj tj = t j t In all the smulatons B s xed n terms o the numerary. In the equlbrum, nvestment s equal to total savngs: ( msav. y.( 1 td ) I = + SG SCCB. ER 44