Exceptional Argentina Di Tella, Glaeser and Llach - Thomas Piketty

analysis, based on the impact of sectoral tariffs on the wage skill premium, indicate
that the level of tariffs has a positive and significant effect on the wages of unskilled
labor, no significant effect on semi-skilled (high school graduates) labor, and a
negative impact on the returns to higher education. Taken together, this evidence
implies that the trade liberalization episodes increased skill premia and thus
contributed to higher overall income inequality in Argentina. 27
The general conclusion from these and other studies on the distributive impact of
trade liberalization in Argentina is that, while more openness implied a wider wage
gap and thus higher levels of earnings inequality, its effects can explain a significant
fraction of the total increase in the wage premium, but the unexplained part is still
large.
The recent literature on income distribution dynamics stresses the importance of
technical change and capital incorporation as alternatives (or complements) of the
trade liberalization channel. The third factor in Table 3 combines changes in
production and organizational technologies, and physical capital accumulation. Both
factors are usually associated with a bias towards skill labor, driving inequality in the
labor market. The relevance of this hypothesis for Argentina is confirmed by the
evidence linking the large increase in inequality in the 1990s to a shock in the
adoption of new technologies, either directly, or through its incorporation via capital
and international trade.
Some of the plausible concurrent factors behind the large increase in income
inequality in Argentina during the decade of 1990 can be derived from the extensions
to the standard trade model. Many of the arguments and the evidence point towards
the importance of technology and capital accumulation (Goldberg and Pavcnik 2004,
2007). Skill biased technological change (SBTC), which might arise endogenously
from increased trade, and the incorporation of technology through the process of
capital accumulation might have occurred concurrently to trade reform in Argentina.
The theoretical arguments are relatively straightforward, and have been formalized in
Krusell et al., 2000, Acemoglu, 2002 and Card and Di Nardo, 2006. Technological
and organizational changes that increase the relative productivity of skilled workers
translate into wider wage gaps, and, with labor market rigidities, also into lower
employment for the unskilled. An increase in the use of physical capital in the
production process becomes unequalizing through two channels. First, if capital
goods incorporate embedded technological change, an increase in investment in new
27 It must be stressed that, as is the case in all the literature covering the relationship between trade an
inequality, the analysis is almost exclusively focused on earnings and not on overall income.