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

Trade and Employment: From Myths to Facts
2.3.3 Trade liberalization’s efficiency gains can be cancelled out by
unemployment
The experience in Mozambique’s liberalization of its cashew industry shows a different
side of the story. McMillan, Rodrik and Welch (2003) study the liberalization
of Mozambique’s cashew trade in the early 1990s, and explore how the drastic series
of reforms had negative economic effects. Reform occurred in 1991–92, with the
replacement of the export ban by export taxes, which were gradually lowered, and
the privatization of the state trading company and the holding company of processing
plants. In their empirical work, the authors establish a model whereby welfare changes
(on all parties involved in the process) from changes in export taxes and other
reforms are separated into export-quantity effects, terms-of-trade effects, unemployment
effects, and traders’ margin effects. They found that farmers did earn more
and output rose, but nowhere near the magnitude estimated in previous studies.
The surplus generated by cashew reform is estimated at US$11.48 million, but the
average increase for farmers amounted to US$5.13 per household per year, or less
than four days’ average wage in Mozambique. Additionally, cashew processors were
net losers from these reforms, incurring an average annual loss of US$7.3 million,
while traders and exporters of raw cashew benefited the most. The authors note that
the closing of the processing plants caused large numbers of unemployed workers,
who remained unemployed long after the closing of the plants. They mention that
nearly 90 per cent of the displaced workers were still unemployed in 2001.
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Box 2.1: Information sharing can reduce unemployment
Anirudh Krishna (2007) found that many poor Indians in dead-end jobs remain in
poverty, not because there are no better jobs but because they lack the connections
to find them. Any Bangalorean could confirm the observation: the city teems with
labourers desperate for work, and yet wealthy software entrepreneurs complain endlessly
about a shortage of maids and cooks.
Inspired by this paper, Sean Blagsvedt created a village-level LinkedIn, the professional
networking site so popular in the United States. Blagsvedt quit Microsoft and, with
his stepfather, Ira Weise, and a former Microsoft colleague, built a social-networking
site to connect Bangalore’s white-collar workers with blue-collar workers. To reach
workers earning US$2 to US$3 a day presented special challenges. The workers
would be unfamiliar with computers. The wealthy potential employers would be reluctant
to let random applicants tend their gardens or their newborns. To deal with
the connectivity problem, Babajob pays anyone, from charities to Internet cafe owners,
who find job-seekers and register them online. Babajob covers its costs through employers’
advertisements. Instead of creating an anonymous job bazaar, Babajob
replicates online the process by which Indians hire in real life: through chains of
personal connections.
The exact number of jobs created by Babajob and the impact this has had on the
lives of the poor is not yet known. But Blagsvedt is exploring the possibility of working
with collaborators to get answers to these questions. In the meantime, Blagsvedt has
kept himself busy opening another such project in Indonesia.