Trade Adjustment Costs in Developing Countries: - World Bank ...

7Trade Reform, Employment Allocationand Worker Flows 1MARC-ANDREAS MUENDLER1. INTRODUCTIONTwo salient workforce changeovers have occurred in Brazil since the late 1980s.Within the traded-goods sector, there is a marked occupational downgrading anda simultaneous educational upgrading by which employers fill expanding lowskill-intensiveoccupations with increasingly educated jobholders. Betweensectors, there is a labor demand shift towards the least and the most skilled, whichcan be traced back to relatively weaker declines of traded-goods industries thatintensively use low-skilled labor and to relatively stronger expansions of nontraded-outputindustries that intensively use high-skilled labor. Interestingly, andin certain contrast to the experience of other Latin American economies, theseobservations are broadly consistent with predictions of Heckscher–Ohlin tradetheory for a low-skill abundant economy.To analyze how workforce changeovers come about, actual worker flows needto be observed within and across employers. The research summarized in thischapter uses linked employer–employee datasets for Brazil to show that workforcechangeovers are not achieved through worker reassignments to new tasks withinemployers or by reallocations across employers and traded-goods industries.Instead, trade-exposed industries shrink their workforces by dismissing lessschooledworkers more frequently than more schooled workers, especially in skillintensiveoccupations, while most displaced workers shift to nontraded-outputindustries or out of recorded employment. Trade liberalization in Brazil generatedworker displacements, particularly from protected industries, but comparativeadvantageindustries and exporters do not absorb many of the trade-displacedworkers. Indeed, these industries displace significantly more workers and hirefewer workers than the average employer. The observed resource reallocationpatterns pose a challenge to classical trade theory, including the Heckscher–Ohlin1 This chapter synthesizes results of previously circulated research in Menezes-Filho et al. (2008),Muendler (2008); Muendler (2004); and Menezes-Filho and Muendler (2007). The chapter was completedwhile the author was visiting Princeton University. Financial support from the World Bank isgratefully acknowledged.