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Non-tradable sector wages track high-skilled tradable sector wages

Oscar Calvo-González's picture
Also available in: Español | Portuguese

Recent data on hourly wages in Latin America and the Caribbean (LAC) reveal that Latin Americans working in the non-tradable sector (as in construction, transportation, hotels, or education) earn much more than workers in low-skill tradable sectors such as agriculture or low-tech manufacturing, and closer to high-skill workers in the tradable sector such as high-tech manufacturing or finance. Despite slight variations across countries, in 11 out of 17 countries studied, the difference between wages in low-skill tradable and non-tradable sectors has grown over the last ten years.[1] In most of these countries, hourly wages display a distinct trend: positive growth for high-skill tradable and non-tradable wages, and stagnating, or even declining for low-skill tradable wages.
 

Graph showing trends in non-tradable wages in Latin America

Source: World Bank's LAC Equity Lab
 

Is this something to worry about? Luckily, we happened to eavesdrop on a conversation between the eternally optimistic Professor Pangloss and the doomsday-predicting Cassandra:

  • Pangloss: Isn’t it uplifting to see that a large share of the employed workforce in LAC has experienced income improvements in the last decade, Cassandra? This means more people are getting out of poverty and have good jobs!
  • Cassandra: Well, not so fast, professor. Non-tradable sectors are full of people working on jobs that add little value, like self-employed street vendors. Do you really believe their future is bright, even if they don’t become more productive?
  •  Pangloss: I do! As high-skilled tradable sectors continue to grow, they are only going to fuel demand for services, increasing the labor incomes of non-tradable sector workers.
  • Cassandra: Come on, professor. You know this will only increase wage inequality between workers in low-skill and high-skilled jobs. The poorest, farm workers and low-wage factory workers, will still be poorer.
  • Pangloss: I think your logic is wrong. The way I see it, agricultural workers will continue to diversify away from farm work into better paying service jobs, and agriculture will have to increase wages to survive. People will also increase their demand for farm products, especially those with higher value added, making farm work more profitable.
  • Cassandra: But who will invest in these sectors if their labor costs increase? It’s a race to the bottom nowadays, with firms moving to ever cheaper labor countries!
  • Pangloss: Oh, Cassandra, I am upbeat about the wage situation in the region and you are not going to convince me otherwise. Let’s agree to disagree. On that note, ciao.
  • Cassandra: Good day, professor.

Readers, what do you think? Do you think if Professor Pangloss is right or is it Cassandra? Leave us a comment.

Note: This blog is part of the 'lacfeaturegraph' series from the LAC Equity Lab team. To look at past posts, please visit here.

[1] Exceptions are Dominican Republic, Ecuador, Honduras, Mexico, Nicaragua and Paraguay.

Comments

Submitted by felix on

I think this survey Is much really over the world am entirely in Africa/kenya where too farmers are going more poor and industries closing and this type of enterprise is right how did it where non-traders wages high my father is a zero grazing but the buyer are more developed more than her etc but i geuss population+demand=enterprise that where non-trader is winning but if you look quite much on investors her sum is miss one gap this is Investors-technology=lowincome why do i say this a green house farmer can earn more than a ordinary farmer well thanks very much for the topic am a businessman keep in touch!
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Submitted by Farid Matuk on

The most striking fact in last 20 years for LAC is the sharp increase of terms of trade. This sudden cash inflow has produced an increase of non-tradable items in general, from assets (real estate for example) to services (as non-tradable wages). In the specific of my home country (Peru) between 1998 and 2013 price of exports increased 4 times and minimum wage (in dollars) increased 3 times without any sort of social unrest, just pure inertia.

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