Low-Income-Country Import Competition and the Structure of Earnings Inequality in Canada, 1996–2001

Abstract

This paper uses a detailed employer–employee dataset to test the effects of low-income-country import competition on the earnings of workers in manufacturing industries in Canada. From 1996 to 2001 earnings inequality increased: the wage gap between manufacturing workers with a university degree and those without a high school diploma rose from 35% to 43%. Greater import competition is found to explain part of the growing wage gap, consistent with Stolper–Samuelson effects. Point estimates suggest that these effects increased slightly over the period of study and are strongest in Quebec, Ontario, and British Columbia, provinces with the highest low-income-country import-penetration rates. However, the results also suggest (i) the relative wage effects of increased import competition are not as ‘clear cut’ as predicted by the Stolper–Samuelson theorem and (ii) that other individual and plant-level factors are important determinants of the structure of earnings inequality in Canada.