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

Trade and Employment: From Myths to Facts
wealth of nations, it is not known with precision whether a marginal change in
imports will increase or decrease employment opportunities. Indeed, most studies
that investigate the employment impact of shifts in the volume and composition
of trade show that the overall impact on employment is small. Baldwin (1994, p.
17), for instance, notes that the net employment effects of changes in exports and
imports have not been significant in OECD countries, and this is the mainstream
view. To a certain extent, these findings can be explained by the fact that models
of trade produced by economists are not designed to take into account the aggregate
employment effects of trade, despite public concern that “trade destroys jobs”
(Davidson and Matusz, 2004). Standard models assume full employment and, in
such models, a shift in the pattern of production in response to trade opportunities
causes only a temporary decline in aggregate employment as workers relocate from
declining to expanding branches of production. These temporary changes in employment
are not a main focus of this chapter, as they are discussed at length in
Chapter 6 in this volume.
One could even ask the question of whether a focus on employment effects
is warranted at all. In standard economic analysis, a gain or loss of employment is
only one part of overall welfare. A reduction in the total amount of employment
can be compensated in part by a rise in leisure and opportunities for home production.
It also affords individuals an opportunity to accumulate human capital by
returning to school or acquiring specialized training. Still, few economists would
doubt that trade may lead to large adverse changes in overall well-being, if it is the
case that a significant number of quality jobs are destroyed.
Instead of focusing on the short-term effects of trade on employment, this
chapter discusses methods to evaluate the long-term effects. Those long-term effects
will to a large extent be determined by the interplay of three variables: trade, productivity
and employment. Significant attention is therefore given in this chapter
to the relationship between those three variables, both at the economy-wide level
and at the cross-sectoral level within economies. The chapter also features a discussion
of how the interaction between trade and productivity affects the quality of employment,
notably in terms of wages and the wage premium between high- and
low-skilled labour.
The chapter starts with a section that highlights the challenges faced by those
who attempt to assess the employment effects of trade. The section contains a discussion
of the need to understand the trade, productivity and employment (both
in terms of quantity and quality) relationship. Challenges related to data requirements
and model choice are also discussed in that section. Sections 3.3 and 3.4 provide
detailed discussions of models available for conducting quantitative assessments of
the employment effects of trade. Section 3.3 focuses on simulation methods and
discusses different methods in order of increasing level of sophistication. Section
3.4 focuses on econometric approaches. Section 3.5 provides a short introduction
into qualitative methods, and section 3.6 concludes with a number of key points
that emerge from the preceding sections as to the proper way to model the relationship
between trade and employment.
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