Theories of wage determination, trade liberalization and the industry wage structure in Uruguay

This dissertation examines wage levels by industry in Uruguay during the period 1968 to 1987. It investigates the size and stability of inter-industry wage differentials, and compares these differentials across occupations, establishment size-classes, and among Uruguay, Argentina and Chile. The dissertation also relates industry wage levels to industry characteristics. These analyses are used to test several hypotheses of wage determination, including the competitive model and variants of the efficiency wage model.The results confirm the predictions of the efficiency wage model. The persistence of wage differentials over time, in a period characterized by economic and institutional changes, suggests that they are not the result of transitory disequilibria but that they reflect and underlying pattern of differentials. As predicted by sociological and rent-sharing models, wage differentials for white and blue collar workers are strongly correlated.Inter-industry wage differentials in Uruguay are also demonstrated to be highly correlated with those in Argentina and Chile. To some extent, however, these differentials reflect technologically-determined wage differences related to establishment size. In addition, high wages are shown to be positively associated with firm size and with the firm's ability to pay. These findings support the shirking and rent-sharing models, respectively.The dissertation also examines the impact of trade liberalization on wages and on employment. The existence of non-competitive wage differentials can justify an activist industrial and trade policy. However, the success of such a policy depends critically on the impact of the policy on wages and on employment. The policy may not be socially desirable if it raises wages for a minority but creates few new jobs.It appears that, in the short run, the expansion in employment from an increase in trade protection may be outweighed by the increase in wages. In the long run, however, the expansion in employment dominates the increase in wages, suggesting that protection may be desirable in some circumstances.