| The purpose of this dissertation is to better understand how the demand for skilled and low-skilled labor changed in Chile after the opening of the economy to free trade in 1974. Econometric studies have documented the rise in wage inequality between skilled and low-skilled workers, but there has been little analysis of the dynamic processes that cause openness to lead to increased dispersion. Responding to this void, I ask: How did industrial restructuring as a result of free trade affect firms' competitive strategies and in the process, their use of labor? The methodology consisted of case studies of two industries: cosmetics, an import-competing industry, and agroindustry, an exporting industry. My analysis involved interviews with managers, union leaders and outside experts; factory tours; document perusal; and statistical analysis, using data from Chile's annual manufacturing census. By "going to the field," I was able to gather current information on the changing strategies of multinational firms, increased competition, technological change, and a changed labor-relations environment, on the employment and pay of skilled and low-skilled workers.; This dissertation argues that Chilean firms have witnessed a decline in rents as a result of external liberalization, and that Chilean capitalists have tried to offset the loss in rents by squeezing the pay of its low-skilled workforce. The decline in rents stems from the drop in price of both intermediate goods supplied by Chilean exporting firms, and final goods sold on the domestic market by Chilean import-competing firms. Heightened international competition has forced both industries to drop their prices to retain market share, lowering firm rents. Chilean capitalists have compensated for falling mark-ups, by instituting numerical and wage flexibility policies available to them as a result of the weak institutional environment that has existed in Chile since the military coup of September 1973. A new, more restrictive labor code and a weak union movement, with low affiliation rates and little dedication by leaders and the rank and file, has enabled Chilean firms to suppress wage growth. The suppression of wages has been directed at low-skilled workers, who are poorly organized and easily replaceable. |
