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

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Chapter 6: Trade adjustment costs and assistance: The labour market dynamics Given that establishment-level information is typically not available in CGE models, the within variation measure can most of the time not be measured, which leads to a probable underestimation of output adjustment. 6.A.2 Changes in the distribution of income Changes in the distribution of income fall, in principle, outside of the definition of adjustment employed in this chapter. While this chapter is concerned with the short term, i.e. the period immediately following trade reform, changes in income distribution are typically discussed with respect to the long run. Yet the changes of income suffered by trade-displaced workers have often been used as an argument in favour of adjustment assistance, as discussed in the main text. Income changes are also typically regarded as an important determinant of trade policy behaviour (see Baldwin, 1989). We therefore propose in this annex a metric that can be used to measure income inequality in a CGE context, based on information on household income. We propose to use this type of measure to establish a social welfare metric. Such a metric would make it possible to evaluate changes in social welfare resulting from trade reform. Starting with constant relative risk aversion (CRRA) preferences, it is possible to map the so-called Atkinson inequality index to social welfare. This in turn means we can, in theory, make inequality-related adjustments to measures of social welfare. To the extent that labour market adjustments are manifested in rising or falling inequality, this also gives us a vector for mapping long-term labour market adjustment to social welfare, this time through the income distribution channel. In formal terms, we first need to define the inequality index: (D1) In equation (D1), h indexes households, while the coefficient ρ measures the degree of relative risk aversion. From the macroeconomics literature, this coefficient is estimated to be less than (though close to) 1. The terms and indicate household income and average income across households. From Francois and Rojas-Romagosa (2010), we can rewrite (D1) as follows. (D2) In equation (D2), the term β h measures the importance of income to primary factors indexed by z in total national income, while represents the household ownership share of this factor. From equation (D2), inequality depends on the unequal distribution of sources of factor income (the last set of terms in round brackets 251
Trade and Employment: From Myths to Facts in equation (D2)) combined with the importance of factors in total national income. Hence, for a given unequal distribution of land, for example, the greater the importance of land to total income, the greater the inequality index. Working with CRRA preferences, the corresponding social welfare function is a Sen-type welfare function. This means we have separability between average income and its dispersion at the household level and can generate the following equation: (D3) The recent literature has employed household data to measure changes in inequality due to globalization trends. Equation (D3) offers a metric for using these CGE-based estimates to calculate welfare metrics for such changes, though to our knowledge this has not been done to date. While equation (D3) measures impacts on welfare, in a dynamic context (over a period of adjustment) it can also be used to translate inequality-related dynamics into dynamic social welfare-related adjustment costs following from transitional changes in inequality. 252 1−θ
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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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Chapter 3: Assessing the impact of
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p * Chapter 3: Assessing the impact
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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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For more than two decades, quantita
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GENDER ASPECTS OF TRADE 5.1 INTRODU
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and income-earning opportunities ge
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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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A third view is that the type of jo
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