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

Trade and Employment: From Myths to Facts
Figure 3.1: Employment response as function of import price for various Armington
elas ticities (initial share of imports = 0.1, μ =1, ε=1.2)
Percentage change in employment
–0.02
–0.04
–0.06
–0.08
–0.1
–0.12
Source: Author’s calculations.
78
Ratio of foreign to domestic price
0 0.2 0.4 0.6 0,8 1 1.2
σ = 0.8
σ = 1.2
σ = 1.4
It follows that reducing export taxes may not produce the expected job gains for
the same reason that consumer preferences mitigated job losses in the demand-side
analysis. Again the magnitude of the Armington elasticity will be crucial to the size
of this effect, and must be carefully estimated.
3.3.1.3 Assessing the CPE method
An audit of costs and benefits of the CPE methods discussed in this section would
conclude that the method could be implemented with minimal data and data-processing
requirements, and relatively simple theoretical set-ups for local market
structures. No teams or special clean rooms are needed, and all that is required is
for policy-makers to think carefully about the applicability of framework to their
economies.
The CPE method quickly and cheaply quantifies the effect of import competition,
but its drawbacks as to the reliability of findings are significant. It certainly
does not represent the end of the analysis of the effects of trade on employment.
Why, for example, are computed job losses assumed not to affect the demand side
of the model? Moreover, the lower price might not simply benefit consumers in
this market but also producers in other markets. As those producers gain from cost
savings, they might well expand, mitigating the job loss in the affected industry.