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

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Chapter 1: Introduction: Towards a coherent trade and employment policy ● Modelling the informal economy Due to the sheer size of the informal economy, assessments of the impact of trade on employment in developing countries should take the specific characteristics of this sector into account. Case studies are helpful to understand the links between the formal and the informal sectors. However, Sinha argues in Chapter 4 that it may be difficult to draw general conclusions from case studies and argues thus in favour of quantitative approaches. The development of CGE models that can be used as a tool for trade policy analysis is described in the annex of Chapter 4. In order to take into account the existence of an informal economy within such approaches, it is typically assumed that a formal economy and an informal economy co-exist, but that they differ in one or several aspects. In her chapter, Sinha presents and discusses different ways of modelling the behaviour of the informal economy within general equilibrium approaches. The informal economy may, for instance, be assumed to produce different products or to use different production factors than the formal economy. Production technologies may also be assumed to differ and the informal economy is typically assumed not to generate any tax income for the government. Ideally, the assumptions made regarding the behaviour of the informal economy should be adjusted to the country that is the object of the analysis. ● Assessing labour market adjustment following trade reform Adjustment is the focus of Chapter 6, by Francois et al.; the discussion in that chapter reveals that there is a growing theoretical literature on adjustments in labour markets following trade reform. This literature has notably benefited from numerous contributions by Davidson and Matusz, assembled in their recent book titled “International trade with equilibrium unemployment” (Davidson and Matusz, 2010). Unfortunately, the insights from their work have – to our knowledge – not yet found their way into CGE exercises. Nevertheless, standard CGE simulations generate information that can be useful for policy-makers concerned about adjustment costs of trade reform. As described in Chapter 6 of this volume, it is straightforward to generate information on the structure of employment, for instance in terms of sectoral allocation, before and after trade reform. This allows policy-makers to identify the sectors in which the most important adjustments take place. In addition, it is possible to generate estimates for the share of the workforce that is likely to have to change jobs as a consequence of trade reform. It is straightforward to generate those estimates with standard CGE approaches. Different options for generating the relevant values are presented in Chapter 6. The chapter also presents an overview of existing estimates based on those methods and for different preferential trade liberalization scenarios involving Latin American countries. Estimated values range from a displacement of less than 1 per cent of the labour force to as much as 17 per cent. While adjustment in labour markets may not be a concern in the first case, the second scenario certainly deserves policy-makers’ attention. These findings also support 11
Trade and Employment: From Myths to Facts the idea that estimates of labour market-related adjustment costs should become a standard element of CGE exercises, which simulate the economic effects of trade reform. ● Assessments should focus on the occupational rather than the industry level. In Chapter 2 of this volume, McMillan and Verduzco make the point that when studying the impact of trade or offshoring on wages and employment, the industry level may be the wrong unit of analysis. If most of the downward pressure on wages occurs in general equilibrium, whereby wages equilibrate across manufacturing sectors very quickly, but not necessarily across larger aggregates, then industry-level analyses miss the most relevant effects of international trade on wages. In a recent paper, Ebenstein et al. (2009) find almost no industry-level wage effects; however, they do find significant employment reallocation in response to import competition and smaller employment responses to offshoring, while import penetration and offshoring are both associated with job losses in manufacturing. To estimate the general equilibrium effects of trade and offshoring on wages, Ebenstein et al. (2009) calculate occupation-specific measures of offshoring, import competition and export activity. If labour market rigidities do not work through frictions in the reallocation of workers within manufacturing but – instead – between occupations (for example, if they are more likely to remain in the same occupation when they switch jobs), then occupation-specific measures of international competition are more appropriate for capturing the effects of trade and offshoring on wages. Their results suggest that this is indeed the case, and that international trade has had large, significant effects on occupation-specific wages. They find that, in the case of the US, a 1 percentage-point increase in occupation-specific import competition is associated with a 0.25 percentage-point decline in real wages. While some occupations have experienced no increase in import competition (such as teachers), import competition in some occupations (such as shoe manufacturing) has increased by as much as 40 percentage points with accordingly significant negative effects on wages. In line with other recent contributions to the offshoring literature, these findings therefore emphasize the need to work with occupationspecific data when evaluating the employment effects of trade and offshoring. Increased efforts should also be put into the systematic collection of relevant data. 1.3 COHERENT AND EVIDENCE-BASED POLICY-MAKING ● In most cases, strong social protection systems are preferable to targeted adjustment assistance Labour appears to bear the bulk of the costs from the adjustment processes following trade reform. Trade reforms do not appear to have strong negative effects on unemployment rates, but costs for unlucky individuals can be substantial. Although trade competition does not target particular types of workers, evidence suggests that trade-displaced workers tend to be slightly older, have more tenure and higher earnings 12
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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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A third view is that the type of jo
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REFERENCES Chapter 5: Gender aspect
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