Publication Date

2007

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Working Paper 132

Abstract

The aim of this paper is to analyze the changes in the wage share in manufacturing industry in Mexico, Turkey, and Korea in the era of globalization. The focus is on the one hand over the effects of globalization on the wage share , which are measured by the effects of international trade and FDI intensity of the economy. On the other hand, the process of opening up has been accompanied by major currency crises in most developing countries in the last decade, which has affected the wage share through exchange rate depreciation and economic recession. The paper develops a Post- Keynesian conflicting claims model for an open economy under the pressure of globalization, and an equation for the wage share is estimated for each country using Seemingly Unrelated Regression method. The results show that both recessions and nominal depreciations have a clear and lasting negative effect on the manufacturing wage share in all countries, whereas the effect of openness, in particular international trade depends on industrial policy structure. Increased export intensity leads to a decline the manufacturing wage share in Turkey and Mexico, but no significant effect in Korea. The positive expectations from FDI are also not materialized in any of the three countries.

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