Trade and Employment

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Trade and Employment

• Challenges for Policy Research

A joint study of
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This joint study

• provides an impartial overview on trade and
  employment ...
• focuses on connections between trade policies,
  and labour and social policies ...
• brings together several streams of literature ...
  
• identifies challenges for research

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This joint study

• Does not give policy advice
• But does help policy makers to think about policy
  design

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Trade and Jobs

• Does trade create jobs ?
• Does trade destroy jobs?

• Trade does both things !
• Many other policies/events create or
  destroy jobs
• Net employment effects have differed across
  countries

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Trade and Jobs

• Trade appears to create and destroy jobs in all
  sectors involved in trade
• Good news ?
• Reallocation easier within than across sectors
• Bad news?
• A wider range of jobs are at risk and more
  difficult for policy makers to predict which jobs
  are at risk

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Trade and income

• Does trade raise income?
• Average income is likely to rise
• Does trade raise wages ?
• Average wages are likely to rise, but little
  evidence on this issue
• Does every workers wage rise?
• Probably not, but depends on the country

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Trade and inequality

• What do we know about inequality?
• It is on the increase in many countries (but not
  all).
• In relative terms
• Capital owners are likely to get better off
• Many skilled workers get better off, but not all
• Low skilled workers are likely to get worse off
• Technological change is the main driver of this
  phenomenon

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Trade and inequality

• Does trade raise inequality?
• In industrialized countries probably yes
• Some developing countries experienced increases,
  others decreases in inequality after trade reform
• Timing of trade reform, FDI and technological
  change explain differences in performance
• But trade is not the main driver !

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Trade and inequality

• How does trade affect inequality?
• Low skilled workers in industrialized countries
  lose from trade with low wage countries
• Trade in general (also among industrialized
  countries) increases competition among workers gt
  possible loss in bargaining power

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The role of policy makers

• Trade policy interacts with
• Labour market policy
• Distribution policy
• Education policy
• A number of other policies
• Coherence helps to optimize outcomes

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Trade and labour market policies

• Insuring workers against adverse professional
  events
• Workers value security
• Modern economies need to constantly reallocate
  resources
• There is probably a trade-off between efficiency
  and insurance
• Trade-off does not need
• to be steep

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Trade and labour market policies

• Facilitating transition following trade reform
• Industrialized countries have social protection
  systems and/or trade adjustment schemes and
  pursue active labour market policies
• Many low and middle income countries have neither
• Could trade adjustment schemes help out?
• How to introduce and to finance them?

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Trade and the informal economy

• Do freedom of association and the right to
  bargain reduce countries competitiveness?
• NO !
• They are more likely to increase productivity

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Trade and labour market policies

• Does trade lead to an increase of the informal
  economy?
• No conclusive evidence
• Do workers in the informal economy get better or
  worse off with trade?
• No conclusive evidence
• Lack of evidence is due
• to lack of data

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Trade and redistribution Policies

• Redistribution policies useful to counter
  increasing inequality, but
• Redistribution affects incentives
• Of those who pay
• Of those who receive
• How to redistribute from mobile winners to
  immobile losers?
• Which is the role of redistribution in capacity
  constrained developing countries?

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Trade and education policies

• Can act as redistributive tools
• Determine countries absorptive capacity and thus
  benefits from innovation
• Affect individuals ability to take advantage
  from trade
• Affect individuals capacity to deal with change

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Trade and education policies

• Challenge
• Skills required are likely to change continuously
  during working life
• Increasingly difficult for policy makers to
  predict required skills
• Finding appropriate answers to this challenge is
  crucial

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Other challenges

• Increase supply response in developing countries
• Ensure that financial markets support efficiency
  and stability
• Take adjustment process into account when setting
  the pace of trade reform that suits

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Conclusion

• Trade and labour and social policies do interact
• Greater policy coherence can have
• significantly positive impacts on
• growth effects of trade reform
• on public support for trade reform
• Research to support this would
• have high payoffs