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

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Chapter 6: Trade adjustment costs and assistance: The labour market dynamics of labour turnover may explain why empirical work has so far not found strong evidence of temporary unemployment surges following trade reform. A comprehensive World Bank study of trade reform in developing countries, Papageorgiou et al. (1991), found that in eight out of nine countries manufacturing employment was higher during and one year after the liberalization period than before. Only in Chile did manufacturing employment decrease significantly. Rama (1994) finds a negative effect of trade liberalization on employment in Uruguay in the late 1970s and early 1980s. Milner and Wright (1998) studied the economy of Mauritius after liberalization and show, in contrast, that manufacturing employment increased significantly in the period directly after liberalization. Harrison and Revenga (1995) track total employment growth for six countries that underwent significant liberalization (cited in Matusz and Tarr, 1999). Employment continued to grow throughout the period prior to, during, and after reform in Costa Rica, Peru and Uruguay. They found, however, the opposite for three countries in transition but argue that these countries undertook reforms that went well beyond trade liberalization. Two studies on the effects of the Canada-United States free trade agreement (FTA) have estimated the job losses induced by the implementation of a trade agreement that took place in a period in which both Canada and the United States were going through a significant recession. Gaston and Trefler (1997) estimate that 9-14 per cent of the jobs lost in the period following trade reform were induced by the FTA-mandated tariff cuts. In a follow-up paper, Trefler (2004) finds a bigger role for the tariff cuts and estimates that close to 30 per cent of the observed employment losses in manufacturing had been the result of FTA-mandated tariff cuts. That paper also finds that employment levels only recovered their pre-FTA level after a period of seven years. 8 Studies belonging to the second strand of literature, which analyses the nature of unemployment caused by trade reform or shocks, find that trade-displaced workers are likely to go through significant spells of unemployment. Bale (1976) finds, for example, an average of 31 weeks of unemployment in the United States. Some studies analyse whether the duration of unemployment is higher for job losses related to trade liberalization than those caused by other lay-offs. Kletzer (2001) finds for the United States, and the OECD (2005a) for 14 EU countries, that the share of re-employed workers after two years is only slightly lower in sectors with high import competition. These studies also look at the characteristics of dismissed workers and find that, on average, the groups appear quite similar in terms of education and work experience, though the trade-related unemployed are slightly older, have more tenure and slightly higher earnings related to the lost job. Previous studies found that being older and having less formal education is associated with greater post-displacement difficulties (see OECD, 2005a). 8 Even taking into account that employment typically recovers slower than output after a shock, this is a long period compared with the finding in Davidson and Matusz’s (2004b) simulations, that output recovers after 2.5 years or less. 223
Trade and Employment: From Myths to Facts Overall, therefore, the existing empirical literature does not provide strong evidence of trade-induced unemployment being very different from unemployment caused by other economic shocks or changes. There is also no strong evidence of trade reform having a strong negative effect on unemployment rates, although there are some indications that trade reform can add significantly to job displacement if undertaken when the job market is already under stress, such as situations of economic recession or major structural change. 6.3.3 Measuring adjustment costs: CGE models The basic approach to ex-ante assessment (in a developed or developing country context) involves the application of a partial or general equilibrium simulation model (see Francois and Reinert, 1997; Francois, 2004). 9 Francois (2004) offers a range of indices for use in CGE models to track factors that drive adjustment costs. In this section, we expand on these by defining a range of indexes that track various aspects of structural adjustment linked to trade. In particular, some of the indices discussed in this section will explicitly deal with the firm-level dimension of adjustment to trade reform, a dimension emphasized in recent literature on changes in the composition and size of firms within sectors in response to trade-related changes in the business climate (Brulhart, 2000; Schott, 2004; Davis, Faberman and Haltiwanger, 2006). The discussion in this section focuses on adjustment in employment levels. Readers not familiar with statistical formulations may consider to skip the equations and focus instead on the descriptive text. The annex to this chapter provides a related discussion on indices to measure adjustment in output and changes in inequality levels. CGE-based simulations of the effects of trade reforms usually generate information on sectoral employment levels after adjustment to the reform. Using information on pre-reform employment levels, changes in sectoral employment levels ( ) can easily be computed with the use of such models. In order to find out the total change in employment as a result of trade reform, it is enough to take the sum of the changes at sectoral level: where λ j reflects the share of sector j ’s employment in total employment, and n represents the number of sectors. Trade reform will typically induce some sectors to shrink and others to grow. The economy-wide change in employment found may thus turn out to be minor, even if changes in sectoral employment levels are large. This is the case because sectoral gains and losses will (partially) cancel out, with the result that net changes 9 See also Piermartini and Teh (2005) for background information on the functioning of computable general equilibrium models (CGEs) and the effect of different modelling assumptions on the welfare effects generated by CGE simulations. 224 (1)
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Trade and Employment From Myths to
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Trade and Employment From Myths to
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PREFACE Trade negotiations -bilater
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Trade and Employment: From Myths to
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EDITORS AND CONTRIBUTORS EDITORS Ma
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ACKNOWLEDGEMENTS The editors wish t
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NEW EVIDENCE ON TRADE AND EMPLOYMEN
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Chapter 2: New evidence on trade an
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Region Annualized percentage change
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Region 1980 1985 1990 1995 2000 200
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Figure 2.4.b: Long-run association
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20 See Harrison and Rodriguez-Clare
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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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Chapter 4: Trade and the informal e
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Page 183 and 184: GENDER ASPECTS OF TRADE 5.1 INTRODU
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