Trade and Wage Premium: A theoretical and empirical analysis

This research paper investigates the existence of an export wage premium in Eastern Europe and Central Asian Countries. Based on the theoretical model of Helpman, Itskhoki and Redding (2012), an exporter offers higher wages than a non-exporter at a given productivity level. Due to unobservable worker abilities, firms use screening tools in order to find out about the abilities of the screened workers. Exporters are using more stringent screening procedures; therefore they hire workers with higher average ability and eventually pay higher wages. Firm level data from Eastern European and Central Asian countries from the World Bank Enterprise Survey are used to investigate this outcome empirically. The findings for an export wage premium are positive and statistically significant. Moreover, firms entering the export market experience higher wage growth. However, the statistical evidence is rather weak and only significant at a 10% level.