Trade and Employment From Myths to Facts - International Labour ...

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Chapter 1: Introduction: Towards a coherent trade and employment policy This edited volume contains six chapters focusing on different themes. Chapter 2, authored by Margaret McMillan and Íñigo Verduzco, provides an overview of the most recent literature on trade and employment. It is followed by a chapter on the methodologies used to assess the employment effects of trade, which is authored by Bill Gibson. Chapter 4, by Anushree Sinha, focuses on the relationship between trade and the informal economy; the chapter contains an overview of existing evidence on this relationship and a discussion of different approaches and methods to assess the employment effects of trade in countries characterized by a large informal economy. In Chapter 5, Günseli Berik discusses the mechanisms through which trade may affect women and men differently, and provides an overview of the existing evidence on the gender-specific employment effects of trade. Chapters 6 and 7 deal with two different challenges frequently associated with trade liberalization. In Chapter 6, Joseph Francois, Marion Jansen and Ralf Peters provide a discussion of the adjustment processes following trade reform, with a particular focus on adjustments in the labour markets; measures to assess adjustment costs related to labour churning are presented and policies to address adjustment concerns are discussed. Last but not least, Céline Carrère, Vanessa Strauss-Kahn and Oliver Cadot examine the relationship between trade reform and the diversification of imports and exports; with poor countries being – on average – characterized by undiversified exports, their analysis of the drivers and impacts of diversification provides new food for thought on the possible role of governments in enhancing the growth and employment effects of trade. Jointly, the six themed chapters in this volume contain a wealth of countryspecific evidence – notably for developing countries – on trade and employment linkages. Individually, each of them provides useful contributions to the three objectives pursued by this book project. In the following section, we summarize some of the main insights that arise from a careful reading of the six chapters. 1.1 FROM MYTHS TO FACTS: FILLING KNOWLEDGE GAPS WITH NEW EVIDENCE ● Allocative efficiency depends on institutional settings Trade reform is typically expected to lead to the reshuffling of production factors – such as labour and capital – from activities that have become uncompetitive to activities that have remained or have become competitive. In traditional trade theory, this reshuffling would take the form of a shuffling across sectors. In the newnew trade theory, it is competitive firms that absorb the production factors liberated by uncompetitive firms and this transition may take place between firms within the same sector (Melitz, 2003). A third alternative is that laid-off production factors end up being employed in the non-tradable sector. Much of the welfare gains from trade are expected to emerge as an outcome of this reshuffling process as factors end up being allocated to activities where they are more efficient. McMillan and Verduzco argue in Chapter 2 of this book that 5
Trade and Employment: From Myths to Facts allocative efficiency depends to a large extent on national institutional settings, an argument that has also been made in Haltiwanger (2011). Haltiwanger describes how well-functioning economies are characterized by a constant reshuffling of resources due to the fact that firms are constantly forced to adjust and adapt to changing economic circumstances. Such well-functioning markets are more likely to be found in developed countries and are – in theory – characterized by full employment. In such smooth markets, those that adapt well will survive and grow, while those that adapt and adjust poorly shrink and exit. In good economic times, and in well-functioning economies, this process – although associated with lay-offs of workers – typically does not result in long unemployment spells and instead tends to lead to increased earnings. In such a situation, globalization has the potential to lead to improved market selection, higher productivity growth and higher earnings growth for workers. Yet Haltiwanger (2011) also emphasizes that many things can go wrong in this reallocative process if economies are distorted, for instance if transportation or communication infrastructure are not sufficiently developed, if ineffective (or non-existent) competition policy does not prevent large firms from abusing their market power, or if financial markets are not sufficiently developed to fund new and expanding businesses. Haltiwanger argues that reallocation has little chance to be productivity enhancing in such distorted economic environments and that – in extreme cases – “de-coupling” may take place, i.e. cases in which policy reforms induce downsizing and exit of some firms but do not lead to the expansion of other firms. Long unemployment spells of workers may be the end result. Another result may be that the relative size of the productive segment of the economy shrinks rather than expands, as illustrated by McMillan and Rodrik (2011). The theme of changes in factor allocation is also discussed in the sixth chapter of this book that is specifically dedicated to the adjustment process following trade liberalization. While most of the literature discussed in that chapter assumes that impediments to the adjustment process only temporarily create problems with resulting economic losses, already early contributions to the literature (Mussa, 1978) highlighted how the existence of adjustment costs may prevent production factors from being allocated to their intended activities. In economic terms, this would imply that the expected long-run equilibrium is never reached. Mussa’s model, together with other contributions to the literature discussed in Chapter 6, therefore imply that the existence of market frictions or other adjustment costs can have significant welfare implications in the long run. While most of the literature surveyed in Chapter 6 concludes that adjustment costs are minor compared to the long-run welfare gains from trade reform, new evidence discussed in McMillan and Verduzco (Chapter 2) and some of the models discussed by Francois, Jansen and Peters (Chapter 6) give reason to believe that adjustment costs should not be ignored and that there may be a role for governments in facilitating economic transition following trade reform. Labour market structures appear to be very important. Davidson and Matusz (2000) have shown that certain structures can lead to adjustment costs that offset gains to a significant extent. In the context of changing global trade patterns following the Great Recession, the 6
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Page 11 and 12: EDITORS AND CONTRIBUTORS EDITORS Ma
Page 13 and 14: ACKNOWLEDGEMENTS The editors wish t
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ASSESSING THE IMPACT OF TRADE ON EM
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APPPENDIX 3.A: TABLES Chapter 3: As
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TRADE AND THE INFORMAL ECONOMY 4.1
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GENDER ASPECTS OF TRADE 5.1 INTRODU
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Figure 5.1: Description of gender i
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Chapter 5: Gender aspects of trade
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REFERENCES Chapter 5: Gender aspect
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