Trade and Employment Challenges for Policy Research A joint study of.

Trade and EmploymentTrade and EmploymentChallenges for Policy Challenges for Policy

ResearchResearch

A joint study of

This joint studyThis joint study

provides an impartial overview on “trade provides an impartial overview on “trade and employment” ...and employment” ...

focuses on connections between trade focuses on connections between trade policies, and labour and social policies ...policies, and labour and social policies ...

brings together several streams of brings together several streams of literature ... literature ...

identifies challenges for researchidentifies challenges for research

This joint studyThis joint study

Does notDoes not give policy advice give policy advice

But But doesdoes help policy makers to help policy makers to think about policy designthink about policy design

Trade and JobsTrade and Jobs

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

Trade does both things ! Trade does both things ! Many other policies/events Many other policies/events

create or destroy jobs create or destroy jobs Net employment effects have Net employment effects have

differed across countries differed across countries

Trade and JobsTrade and Jobs

Trade appears to create and destroy jobs Trade appears to create and destroy jobs in all sectors involved in tradein all sectors involved in trade

Good news ?Good news ?Reallocation easier within than across Reallocation easier within than across sectorssectors

Bad news?Bad news?A wider range of jobs are at risk and more A wider range of jobs are at risk and more difficult for policy makers to predict which difficult for policy makers to predict which jobs are at riskjobs are at risk

Trade and incomeTrade and income

Does trade raise income?Does trade raise income?

Average income is likely to riseAverage income is likely to rise Does trade raise wages ?Does trade raise wages ?

Average wages are likely to rise, Average wages are likely to rise, but little evidence on this issuebut little evidence on this issue

Does every worker’s wage rise?Does every worker’s wage rise?

Probably not, but depends on the Probably not, but depends on the countrycountry

Trade and inequalityTrade and inequality

What do we know about inequality?What do we know about inequality?• It is on the increase in many countries (but not It is on the increase in many countries (but not

all). all).

In In relative termsrelative terms:: Capital owners are likely to get better offCapital owners are likely to get better off Many skilled workers get better off, but not allMany skilled workers get better off, but not all Low skilled workers are likely to get worse offLow skilled workers are likely to get worse off

• Technological changeTechnological change is the is the main drivermain driver of this of this phenomenonphenomenon

Trade and inequalityTrade and inequality

Does trade raise inequality?Does trade raise inequality?

• In industrialized countries probably yesIn industrialized countries probably yes

• Some developing countries experienced Some developing countries experienced increases, others decreases in inequality after increases, others decreases in inequality after trade reformtrade reform

Timing of trade reform, FDI and technological change Timing of trade reform, FDI and technological change explain differences in performanceexplain differences in performance

• But trade is not the main driver !But trade is not the main driver !

Trade and inequalityTrade and inequality

How does trade affect inequality?How does trade affect inequality?

• Low skilled workers in industrialized Low skilled workers in industrialized countries lose from trade countries lose from trade with low wage with low wage countriescountries

• Trade in general (also Trade in general (also among among industrialized countriesindustrialized countries) increases ) increases competition among workers => possible competition among workers => possible loss in bargaining powerloss in bargaining power

The role of policy makersThe role of policy makers

Trade policy interacts with:Trade policy interacts with:

Labour market policyLabour market policy Distribution policyDistribution policy Education policyEducation policy A number of other policiesA number of other policies

Coherence Coherence helps tohelps to optimize outcomes optimize outcomes

Trade and labour market policiesTrade and labour market policies Insuring workers against adverse Insuring workers against adverse

professional eventsprofessional events

• Workers value securityWorkers value security• Modern economies need to constantly Modern economies need to constantly

reallocate resourcesreallocate resources• There is probably a trade-off between There is probably a trade-off between

efficiency and insuranceefficiency and insurance

Trade-off does not need Trade-off does not need to be steepto be steep

Trade and labour market policiesTrade and labour market policies

Facilitating transition following trade Facilitating transition following trade reformreform

• Industrialized countries have social protection Industrialized countries have social protection systems and/or trade adjustment schemes and systems and/or trade adjustment schemes and pursue active labour market policiespursue active labour market policies

• Many low and middle income countries have Many low and middle income countries have neitherneither

Could trade adjustment schemes help out?Could trade adjustment schemes help out? How to introduce and to finance them?How to introduce and to finance them?

Trade and the informal economyTrade and the informal economy

Do freedom of association and the Do freedom of association and the right to bargain reduce countries’ right to bargain reduce countries’ competitiveness?competitiveness?

NO !NO !

They are more likely to increase They are more likely to increase productivityproductivity

Trade and labour market policiesTrade and labour market policies

Does trade lead to an increase of the Does trade lead to an increase of the informal economy?informal economy?No conclusive evidenceNo conclusive evidence

Do workers in the informal economy get Do workers in the informal economy get better or worse off with trade?better or worse off with trade?No conclusive evidenceNo conclusive evidence

Lack of evidence is due Lack of evidence is due to lack of datato lack of data

Trade and redistribution PoliciesTrade and redistribution Policies Redistribution policies useful to counter Redistribution policies useful to counter

increasing inequality, but:increasing inequality, but:

• Redistribution affects incentivesRedistribution affects incentives Of those who payOf those who pay Of those who receiveOf those who receive

• How to redistribute from mobile winners to How to redistribute from mobile winners to immobile losers?immobile losers?

• Which is the role of redistribution in capacity Which is the role of redistribution in capacity constrained developing countries?constrained developing countries?

Trade and education policiesTrade and education policies

Can act as redistributive toolsCan act as redistributive tools

Determine countries’ absorptive capacity Determine countries’ absorptive capacity and thus benefits from innovationand thus benefits from innovation

Affect individuals’ ability to take Affect individuals’ ability to take advantage from tradeadvantage from trade

Affect individuals’ capacity to deal with Affect individuals’ capacity to deal with changechange

Trade and education policiesTrade and education policies

Challenge:Challenge:

Skills required are likely to change Skills required are likely to change continuously during working lifecontinuously during working life

Increasingly difficult for policy makers to Increasingly difficult for policy makers to predict required skillspredict required skills

Finding appropriate answers to Finding appropriate answers to this challenge is crucialthis challenge is crucial

Other challenges Other challenges

Increase supply response in Increase supply response in developing countriesdeveloping countries

Ensure that financial markets support Ensure that financial markets support efficiency and stabilityefficiency and stability

Take adjustment process into Take adjustment process into account when setting the pace of account when setting the pace of trade reform that suits trade reform that suits

ConclusionConclusion

Trade and labour and social policies do Trade and labour and social policies do interactinteract

Greater policy coherence can haveGreater policy coherence can have

significantly positive impacts onsignificantly positive impacts on•growth effects of trade reformgrowth effects of trade reform•on public support for trade reformon public support for trade reform

Research to support this would Research to support this would

have high payoffshave high payoffs