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Working Paper | HBS Working Paper Series | 2019

Using Online Data for International Wage Comparisons

by Alberto Cavallo, Javier Cravino and Andres Drenik

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Abstract

We use a novel dataset from a large freelance website to document international wage differences for performing tasks that can be delivered online. The data records detailed information on tasks and worker characteristics which facilitates cross-country comparisons. We show large wage disparities across freelancers from different countries working on narrowly defined tasks. These wage differentials across countries are not driven by differences in observable worker characteristics. Real exchange rate levels account for about 50 percent of the cross-country-variation in average wages, and the elasticity of relative wages with respect to the real exchange rate is about 0.4. The magnitudes of these findings are pervasive across different country groups and types of jobs.

Keywords: Economics; Wages; Global Range; Data and Data Sets; Service Industry;

Language: English Format: Print 26 pages Read Now

Citation:

Cavallo, Alberto, Javier Cravino, and Andres Drenik. "Using Online Data for International Wage Comparisons." Harvard Business School Working Paper, No. 20-042, September 2019.

About the Author

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Alberto F. Cavallo
Edgerley Family Associate Professor of Business Administration
Business, Government and the International Economy

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More from the Author

  • Working Paper | HBS Working Paper Series | 2019

    Tariff Passthrough at the Border and at the Store: Evidence from U.S. Trade Policy

    Alberto Cavallo, Gita Gopinath, Brent Neiman and Jenny Tang

    We use micro data collected at the border and at retailers to characterize the effects brought by recent changes in US trade policy -- particularly the tariffs placed on imports from China -- on importers, consumers, and exporters. We start by documenting that the tariffs were almost fully passed through to total prices paid by importers, suggesting the tariffs' incidence has fallen largely on the United States. Since we estimate the response of prices to exchange rates to be far more muted, the recent depreciation of the Chinese renminbi is unlikely to alter this conclusion. Next, using product-level data from several large multi-national retailers, we demonstrate that the impact of the tariffs on retail prices is more mixed. Some affected product categories have seen sharp price increases, but the difference between affected and unaffected products is generally quite modest, suggesting that retail margins have fallen. These retailers' imports increased after the initial announcement of possible tariffs, but before their full implementation, so the intermediate passthrough of tariffs to their prices may not persist. Finally, in contrast to the case of foreign exporters facing US tariffs, we show that US exporters lowered their prices on goods subjected to foreign retaliatory tariffs compared to exports of non-targeted goods.

    Keywords: Trade War; tariffs; exchange rate passthrough; Economics; Trade; Policy; Inflation and Deflation; United States; China;

    Citation:

    Cavallo, Alberto, Gita Gopinath, Brent Neiman, and Jenny Tang. "Tariff Passthrough at the Border and at the Store: Evidence from U.S. Trade Policy." NBER Working Paper Series, No. 26396, October 2019. (Harvard Business School Working Paper, No. 20-041, October 2019.)  View Details
    CiteView Details Read Now Related
  • Teaching Note | HBS Case Collection | September 2018 (Revised October 2019)

    Hank and Nancy: The Subprime Crisis, the Run on Lehman and the Shadow Banks, and the Decision to Bailout Wall Street

    Rafael Di Tella and Alberto Cavallo

    Teaching Note for HBS No. 718-022.

    Citation:

    Di Tella, Rafael, and Alberto Cavallo. "Hank and Nancy: The Subprime Crisis, the Run on Lehman and the Shadow Banks, and the Decision to Bailout Wall Street." Harvard Business School Teaching Note 719-010, September 2018. (Revised October 2019.)  View Details
    CiteView DetailsPurchase Related
  • Working Paper | HBS Working Paper Series | 2019

    Real Exchange Rate Behavior: New Evidence from Matched Retail Goods

    Alberto Cavallo, Brent Neiman and Roberto Rigobon

    We use a dataset containing daily prices for thousands of matched retail products in nine countries to study tradable-goods real exchange rates. Prices were collected from the web-sites of large multi-channel retailers and then carefully matched into narrowly-defined prod-uct categories, providing relative price levels data that collectively represent the bulk of expenditures on food, fuel, and consumer electronics in each country. Using bilateral results with the US, we show that relative prices in local currencies co-move closely with nomi-nal exchange rates. Exchange-rate passthrough into relative prices is approximately 75%, compared to 30% with CPI data for the same countries and time periods. We decompose the difference and show that the majority of the difference – about 25 percentage points –comes from the use of closely-matched products. The rest of the gap owes about equally to the exclusion of non-tradable sub-categories and to our inclusion of entering and exiting goods. These results suggest that the retail prices for tradable goods can adjust quickly to nominal exchange rate movements and vice-versa, and have important implications for a vast literature that tries to characterize both the level and behavior of real exchange rates over time.

    Keywords: Purchasing power parity; Online Prices; Real exchange rate; Macroeconomics; Currency Exchange Rate; Price; Internet;

    Citation:

    Cavallo, Alberto, Brent Neiman, and Roberto Rigobon. "Real Exchange Rate Behavior: New Evidence from Matched Retail Goods." Harvard Business School Working Paper, No. 20-040, January 2019.  View Details
    CiteView Details Read Now Related
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