Competition and the racial wage gap: Evidence from Brazil

• Published in: Journal of development economics 2020-09, Vol.146, p.102519, Article 102519
• Main Authors: Hirata, Guilherme, Soares, Rodrigo R.
• Format: Article
• Language: English
• Subjects: Brazil; Competition; Discrimination; Labor market; Racial wage gap; Trade reform
• ISSN: 0304-3878; 1872-6089
• DOI: 10.1016/j.jdeveco.2020.102519

We look at the natural experiment represented by the Brazilian trade liberalization from the early 1990s to study the effect of increased competition in the market for final goods on the racial wage gap. We focus on local labor markets as the unit of analysis and use the initial structure of employment to calculate the relevant tariff reduction from the perspective of each local labor market. We show that the conditional racial wage gap fell more between 1991 and 2000 in regions associated with larger reductions in tariffs, or, in other words, in regions that experienced larger increases in exposure to international competition. A reduction in tariffs equivalent to the average observed in the sample was associated with a reduction in the racial wage gap of 18%. Our results are broadly consistent with theories of employer discrimination that predict that reductions in pure economic rents should lead to reductions in labor market discrimination. •We analyze the effect of increased competition in the market for final goods on discrimination in the labor market.•We use the Brazilian trade liberalization from the 1990s as a natural experiment.•We show that increased exposure to foreign competition reduced the wage gap between black and white workers.•The ​reduction in the wage gap was larger in labor markets with a higher share of employment in concentrated sectors.