Abstract:
This paper analyzes the changes in the wage share in manufacturing industry in Mexico, Turkey, and Korea in the era of globalization. The author assesses the effects of globalization on the wage share, as measured by the effects of international trade and foreign direct investment (FDI) intensity of the economy. At the same time, the processes of globalization and opening up have been accompanied by major currency crises in most developing countries in the last decade—hence the author also examines the impact that exchange rate depreciation and economic recession have had on wage share.

The paper develops a Post- Keynesian conflicting claims model for an open economy under the pressure of globalization. An equation for the wage share is estimated for each country using the ‘seemingly unrelated regression’ method. The results show that both recessions and nominal depreciations have a clear and lasting negative effect on the manufacturing wage share in all countries, whereas the effect of openness, in particular international trade, depends on industrial policy structure. Increased export intensity leads to a decline the manufacturing wage share in Turkey and Mexico, but has no significant effect in Korea. The positive expectations from FDI also do not materialized in any of the three countries.

Ozlem Onaran is a PERI Research Scholar and Associate Professor at Vienna University of Economics and Business Administration.