Trade and Employment. From Myths to Facts. Editors : Marion Jansen Ralf Peters José Manuel Salazar-Xirinachs - PDF

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Trade and Employment From Myths to Facts Editors : Marion Jansen Ralf Peters José Manuel Salazar-Xirinachs Trade and Employment From Myths to Facts Trade and Employment From Myths to Facts Editors: Marion

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Trade and Employment From Myths to Facts Editors : Marion Jansen Ralf Peters José Manuel Salazar-Xirinachs Trade and Employment From Myths to Facts Trade and Employment From Myths to Facts Editors: Marion Jansen, Ralf Peters, José Manuel Salazar-Xirinachs INTERNATIONAL LABOUR OFFICE GENEVA Copyright International Labour Organization 2011 First published 2011 Publications of the International Labour Office enjoy copyright under Protocol 2 of the Universal Copyright Convention. Nevertheless, short excerpts from them may be reproduced without authorization, on condition that the source is indicated. For rights of reproduction or translation, application should be made to ILO Publications (Rights and Permissions), International Labour Office, CH-1211 Geneva 22, Switzerland, or by The International Labour Office welcomes such applications. Libraries, institutions and other users registered with reproduction rights organizations may make copies in accordance with the licences issued to them for this purpose. Visit to find the reproduction rights organization in your country. Trade and employment: from myths to facts / International Labour Office. - Geneva: ILO, 2011 International Labour Office ISBN: (print) ISBN: (web pdf) trade / trade liberalization / employment / employment policy / gender equality / informal economy / developed countries / developing countries 1 v ILO Cataloguing in Publication Data This publication has been produced with the assistance of the European Union. The contents of this publication are the sole responsibility of the authors and can in no way be taken to reflect the views of the European Union or the International Labour Organization. The designations employed in ILO publications, which are in conformity with United Nations practice, and the presentation of material therein do not imply the expression of any opinion whatsoever on the part of the International Labour Office concerning the legal status of any country, area or territory or of its authorities, or concerning the delimitation of its frontiers. Reference to names of firms and commercial products and processes does not imply their endorsement by the International Labour Office, and any failure to mention a particular firm, commercial product or process is not a sign of disapproval. Visit our website: Photocomposed in Switzerland Printed in Switzerland SCR ATA PREFACE Trade negotiations bilateral, regional or multilateral routinely lead to debates on the implications for employment. There are promises of new and better jobs as well as concerns over job losses and pressure on wages and labour rights. Factual assessments of the employment and distributional impacts of trade agreements are, however, too often missing. This edited volume tries to address this disconnect between the trade-andemployment linkages in public debates and the relative absence of factual assessments of the employment and distributional implications of trade. The publication is an outcome of a joint project of the European Commission and the International Labour Office on Assessing and addressing the employment effects of trade. This publication has three objectives: First, to fill knowledge gaps by taking stock of the existing evidence on trade and employment with a focus on work using recent methodologies and datasets and on work that pays special attention to the functioning of labour markets. Second, to contribute to the design of tools that governments, social partners and experts can use to evaluate the employment effects of trade. And third, to contribute to the design of policy mixes that promote open markets whilst at the same time promoting quality jobs with adequate levels of protection. We are confident this publication will contribute to strengthening the evidence base for trade and employment policies. Ultimately, we hope that it will facilitate the design of new generations of coherent policies that ensure the economic and social sustainability of globalization. María Angélica Ducci Executive Director Office of the Director General International Labour Office Fokion Fotiadis Director General Directorate-General for Development and Cooperation - EuropeAid European Commission v CONTENTS 1. Introduction: Towards a Coherent Trade and Employment Policy Marion Jansen, Ralf Peters and José Manuel Salazar-Xirinachs 1.1 From myths to facts: Filling knowledge gaps with new evidence Generating facts: providing tools to generate more evidence Coherent and evidence-based policy making Public perceptions versus policy-makers decisions concerning globalization New Evidence on Trade and Employment: An Overview Margaret McMillan and Íñigo Verduzco 2.1 Introduction Trade and employment: Aggregate trends Trends in openness, real wages and employment Correlations between tariffs, employment and real wages Trade and employment: Five lessons from recent empirical work The general equilibrium effects of trade and employment are significant Labour has lost bargaining power relative to capital Trade liberalization s efficiency gains can be cancelled out by unemployment Trade can have an impact on the quality of jobs Trade in tasks has ambiguous implications for employment vii Trade and Employment: From Myths to Facts 2.4 Can governments influence the relationship between trade and employment? Land Grab? The race for the world s farmland FDI inflows and development: The case of Africa Policy implications and directions for future research Assessing the Impact of Trade on Employment Bill Gibson 3.1 Introduction Assessing the employment effects of trade: Main challenges Trade, productivity and employment Taking into account wage effects Which methodology? Overcoming implementation obstacles Assessing the employment impact of trade: Simulation methods Factor content and partial equilibrium methods Two-sector factor substitution models Input-output framework Social accounting matrices and computable general equilibrium models Comparing different simulation methods Assessing the employment impacts of trade: Econometric methods Trade and sectoral employment Trade and wages of skilled and unskilled workers Trade, productivity and employment Assessing the employment impacts of trade: Qualitative methods Conclusions Trade and the Informal Economy Anushree Sinha 4.1 Introduction The concept of the informal economy The informal economy and the relationship between trade and informality viii Contents The informal economy Trade and the informal economy: Theory and concepts Approaches to assess the impact of trade on the informal economy Qualitative approaches (micro-level studies) Empirical quantitative studies Computable general equilibrium (CGE) models Policy recommendations Conclusions and the way forward Gender Aspects of Trade Günseli Berik 5.1 Introduction Assessing gender impacts of trade Gender inequalities precede trade reforms Methodological considerations: indentifying the gender impacts of trade The gender impacts of trade on employment and wages Theoretical Approaches Empirical evidence: Global feminization of employment Empirical evidence: Wage levels, wage growth and gender wage gaps Empirical analyses of trade impacts on gender wage gaps Trade liberalization in agriculture: Women farmers and agricultural workers Intra-household effects of trade liberalization: Time and resource allocation Time allocation Resource allocation Conclusions and policy implications Main findings Policy recommendations: promoting genderequitable job creation and economic security ix Trade and Employment: From Myths to Facts 6. Trade Adjustment Costs and Assistance: The Labour Market Dynamics Joseph Francois, Marion Jansen, and Ralf Peters 6.1 Introduction Defining adjustment costs Adjustment costs: measurement and determinants Factors determining adjustment costs Measuring adjustment costs: Ex-post analysis Measuring adjustment costs: CGE models Adjustment assistance Definition of trade adjustment assistance Reasons for adjustment assistance Labour market policies to facilitate adjustment Specific trade adjustment assistance Trade policies addressing adjustment costs Other domestic policies Conclusions and Policy Recommendations Trade Diversification: Drivers and Impacts Olivier Cadot, Céline Carrère and Vanessa Strauss-Kahn 7.1 Introduction Measuring diversification Concentration/Diversification indices Trade-expansion margins Alternative margins What do we learn from these measures? Trends in diversification Which margin matters? Drivers of diversification Quantitative insights Trade liberalization as a driver of diversification Diversification, spillovers and industrial policy Export diversification, growth and employment Diversification and productivity: An issue of causality x Contents The natural-resource curse A concentration curse? Export Processing Zones (EPZs), export diversification and employment Import diversification, employment and industrial policies Gains from diversity and import competition Impacts of imported inputs on productivity and employment Productivity gains and absorptive capacities Offshoring and wages Conclusions xi EDITORS AND CONTRIBUTORS EDITORS Marion Jansen, Coordinator, Trade and Employment Programme, International Labour Organization (ILO). Ralf Peters, Economic Affairs Officer, Trade Negotiations and Commercial Diplomacy Branch, Division on International Trade, United Nations Conference on Trade and Development (UNCTAD). José Manuel Salazar-Xirinachs, Executive Director, Employment Sector, International Labour Organization (ILO). CONTRIBUTORS Günseli Berik, Associate Professor of Economics, University of Utah. Olivier Cadot, Senior Economist, The World Bank; Professor, University of Lausanne; and Fellow, Centre for Economic Policy Research (CEPR). Céline Carrère, Associate Professor, University of Geneva and Fellow, Fondation pour les Études et Recherches sur le Développement International (FERDI). Joseph Francois, Professor of Economics, Johannes Kepler University; Director of the European Trade Study Group (ETSG); Board Member of the Global Trade Analysis Project (GTAP); and Research Fellow at the Center for Economic Policy Research (CEPR). Bill Gibson, Professor of Economics, University of Vermont. Margaret McMillan, Associate Professor of Economics, Tufts University; Deputy Division Director, Development Strategy and Governance Division, International Food Policy Research Institute (IFPRI); and Research Associate, National Bureau of Economic Research (NBER). xiii Trade and Employment: From Myths to Facts Anushree Sinha, Senior Fellow, National Council of Applied Economic Research (NCAER). Vanessa Strauss-Kahn, Associate Professor of Economics, ESCP Europe and Research Affiliate, Centre for Economic Policy Research (CEPR). Íñigo Verduzco, Research Analyst, International Food Policy Research Institute (IFPRI). xiv ACKNOWLEDGEMENTS The editors wish to thank Erik von Uexkull and David Cheong for their continuous support to this book project. They also want to thank Azita Berar Awad, Sara Elder, Frédéric Lapeyre, Naoko Otobe and Simonetta Zarrilli for their comments on earlier versions of this manuscript. Acknowledgements also go to the participants of the Expert Meeting on Assessing and addressing the effects of trade on employment in December 2009, in particular to the discussants Marc Bacchetta, Marco Fugazza, David Kucera, Jörg Mayer, Scott McDonald and Pierella Paci. xv INTRODUCTION: TOWARDS A COHERENT TRADE AND EMPLOYMENT POLICY 1 by Marion Jansen, Ralf Peters 1 and José Manuel Salazar-Xirinachs In the era of globalization, most economists and policy-makers have asserted that trade liberalization has a strong potential to contribute to growth and that those effects will be beneficial for employment. This belief has strongly influenced the liberalization policies of the last 25 years, in multilateral, regional and bilateral settings. Yet survey evidence illustrates that negative perceptions of the labour market effects of trade are frequent and persistent among the population, particularly in the industrialized world but increasingly also in developing countries. Recent surveys show an increasing concern about income and job security (Milberg and Winkler, 2011). In the United States, 40 per cent of respondents to a recent survey expected that the next generation will have lower standards of living (Anderson and Gascon, 2007). Some 62 per cent said job security had declined; and 59 per cent said that they were having to work harder to earn a decent living. Surveys also show that concern about job security and job quality is often linked to increases in trade and foreign direct investment (FDI) in the perception of the public. Approximately 75 per cent of US respondents replied that outsourcing overseas hurts American workers. Another survey shows that about half of North Americans and Europeans think that freer trade results in more job destruction than job creation (German Marshall Fund, 2007). Those numbers, however, do not indicate that interviewees have an entirely negative perception of globalization. Indeed, evidence based on surveys that make a distinction between growth and employment impacts of globalization reveals 1 Ralf Peters contributed to this publication during his stay at the International Labour Office (ILO) as the chief technical advisor for the EU-financed project Assessing and Adressing the Effects of Trade on Employment that has provided funding for this publication. The opinions expressed in this chapter can in no way be taken to reflect the views of the EU, the ILO or the UNCTAD. 1 Trade and Employment: From Myths to Facts that a majority of respondents in industrialized countries believes in the positive growth effects of globalization that are so often emphasized in the public debate. But they appear to doubt that growth effects also positively affect the majority of citizens. Indeed, recent survey evidence in European countries (Eurobarometer) indicates that in all but one of the 43 countries surveyed, the majority of respondents believed that globalization provides opportunities for economic growth but increases social inequalities. In all countries surveyed, the majority of respondents agreed with the statement that globalization is profitable only for large companies, not for citizens. Also in developing countries, there is concern about the distribution of gains from trade. Relevant survey evidence is rare, but those conducting country-level work easily become aware of such concerns. This has also been the case in the context of the field work conducted for the European Union (EU)-funded project that has financed the publication of this edited volume. Workers and employers in Indonesia express concern about the effect of competition from cheap Chinese imports. 2 In Bangladesh, textile workers demonstrated in December 2010 because they had been denied payment of the legal minimum wage by their employers, which included powerful multinational companies. 3 In Guatemala, working conditions including pay in the exporting agricultural sector have been a subject of controversy for many years. Even in emerging economies with booming exports and strong growth figures, such as China and India, there is concern that trade does not deliver the expected miracle in terms of jobs. In China, the share in manufacturing employment has remained rather stable for the past ten years (Chen and Hou, 2009), notwithstanding massive annual increases in manufacturing exports, which have reached an average of 20 per cent growth per year in the period from 2000 to 2007 (WTO, 2008). The Great Recession has increased concern among policy-makers that the crisis experience may strengthen negative perceptions of globalization. Indeed, concern about a possible backlash against globalization has risen and dominates part of the debate in the trade community. In an attempt to avoid such a backlash and to gather sufficient public support for further multi-lateral and regional trade liberalization, policy-makers are looking for answers to the question of why the employment and distributional effects of globalization have persistently been perceived as much less positive than the growth effects. During the period in which this chapter was written, there have been a multitude of statements and initiatives related to trade and employment linkages, including a statement by the Director- General of the World Trade Organization, Pascal Lamy, emphasizing the relevance of the employment impact of trade flows. 4 2 See The Jakarta Post, 21 Jan and 23 Apr In the latter, the Chamber of Commerce calls for renegotiating AFCTA. 3 See Financial Times, Asia Pacific Edition, 12 December Neue Zürcher Zeitung, 1 Dec Chapter 1: Introduction: Towards a coherent trade and employment policy The ongoing public debate reflects an effort to base arguments and statements on existing theoretical and empirical evidence on trade and employment linkages; however, that evidence suffers from a number of important shortcomings: First, the theoretical and empirical literature on the benefits of trade and trade liberalization has for a long time been geared towards analysing its growth and overall welfare effects. This is particularly true for quantitative work using simulation methods (e.g. computable general equilibrium (CGE) models), work that is often used as a point of reference for trade negotiators as it allows them to evaluate the economic effects of the negotiation positions they take. On the other hand, quantitative work focusing on the employment effects of trade is relatively scarce. Second, the public debate on trade and employment linkages generally clumps together the different channels or links without distinguishing clearly between such different aspects of trade as: trade liberalization measured by changes in the trade policy regime (reflected, for instance, in changes in the level of industrial or agricultural tariffs); trade integration measured by volume of exports or imports; trade openness measured by value of exports plus imports over gross domestic product (GDP); or the value of outsourcing or total flows of FDI. Yet all of these are quite different aspects of trade. While the theoretical and empirical literature usually makes careful distinctions on the variables to measure these different aspects of trade policy or trade and investment flows, these distinctions are not successfully channelled into the public debate. Third and reflected in the discussion in the paragraphs above the existing evidence is still dominated by the labour market effects of trade in industrialized countries. As data availability improves, an increasing number of studies focus on developing countries; but data limitations remain severe for the poorest among them. Fourth, until recently, most of the theoretical and empirical trade work ignored major trade-related realities, such as the existence of trade costs and the role of individual firms in trade performance. This has dramatically changed with the arrival of the so-called new-new trade theory and empirical evidence based on firm-level data. There is a growing body of academic literature linking those new theoretical and empirical approaches to labour markets and to employment, but it is still in its infancy. Fifth, the existing work that links trade and labour markets tends to be based on strong simplifying assumptions concerning the functioning of the labour market. This is most strikingly reflected in the fact that most relevant work totally ignores the existence of an informal economy, although this often represents the majority of economic activity in developing countries. There is again a growing body of literature that tries to address this situation by building more sophisticated labour market structures into theoretical and 3 Trade and Employment: From Myths to Facts empirical models, but so far the existing
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