LAW & ECONOMICS WORKSHOP
presents
Dan Trefler
University of Toronto
Rotman School of Management
The Rents from Trade: Removing the Sugar Coating
Tuesday, October 14, 2014
4:10 - 5:45
Solarium (room FA2), Falconer Hall
84 Queen's Park
Standard economic analysis of the impact of globalization on wages is too limited because it ignores the often unequal power of employers over employees. We consider a model with two channels through which terms-of-trade shocks affect wages. The market forces channel is the standard one in which favourable terms-of-trade shocks raise labour demand and hence raise wages. The institutional channel is new: an elite dominates the export sector and favourable terms-of-trade shocks strengthen the elite, which then uses its political power to reduce workers’ employment opportunities outside of the export sector. This depresses workers’ wages.
Using unique data for 14 British Caribbean sugar colonies during 1838-1913, we examine the impact of the period’s massive decline in sugar prices on wages and incarceration rates. Our first-stage regressions show that variation across time and across colonies in the extent to which the sugar economy collapsed can be fully explained by cross-colony differences in the suitability of soil for sugar. In our second stage, we regress wages and incarcerations rates on world sugar prices and the strength of the plantation economy (as measured by sugar exports). We find the following: (i) The market-forces channel: The fall in sugar prices over 1838-1913 depressed wages by 14%. (ii) The institutional channel: The partial collapse of the coercive plantation system raised wages by a fully offsetting 36% and lowered incarceration rates by 46%. In short, both channels are important.
Dan Trefler has degrees in economics from the University of Toronto (B.A.), Cambridge University (M.Phil.), and UCLA (Ph.D.). He is a Chaired Professor at the Rotman School of Management, University of Toronto. He is currently a Research Fellow both at the Canadian Institute for Advanced Research (CIFAR) and at the National Bureau of Economic Research (NBER). He is co-editor of the Journal of International Economics and recipient of numerous awards, including the Canadian Economics Association’s Innis award “in recognition of contributions to economics in the broad sense” and the McDonald Award for contributions to early childhood research and advocacy. On the policy front, he is a member of both the Ontario Government’s Task Force on Competitiveness and the C.D. Howe’s International Economic Policy Council. Most recently he oversaw the economic research that backstopped the Canada-EU Comprehensive Economic Trade Agreement negotiations. Trefler's research centers on the impact of international trade on innovation, employment, earnings, and domestic institutions. His current research focuses on the domestic and international levers for promoting competitiveness and broad-based prosperity.
For more workshop information, please contact Nadia Gulezko at n.gulezko@utoronto.ca.
