How does trade policy affect the labor market?
Trade policy defines the laws related to the exchange of goods or services involved in trade between different countries, including taxes, subsidies, and import/export regulations.
For new academic research on this topic, see IZA's discussion papers on trade.
International trade regulation and job creation Updated
Trade policy is not an employment policy and should not be expected to have major effects on overall employmentL. Alan WintersMattia Di Ubaldo, February 2020Trade regulation can create jobs in the sectors it protects or promotes, but almost always at the expense of destroying a roughly equivalent number of jobs elsewhere in the economy. At a product-specific or micro level and in the short term, controlling trade could reduce the offending imports and save jobs, but for the economy as a whole and in the long term, this has neither theoretical support nor evidence in its favor. Given that protection may have other—usually adverse—effects, understanding the difficulties in using it to manage employment is important for economic policy.MoreLess
Effect of international activity on firm performance Updated
Trade liberalization benefits better performing firms and contributes to economic growthJoachim Wagner, November 2019There is evidence that better performing firms tend to enter international markets. Internationally active firms are larger, more productive, and pay higher wages than other firms in the same industry. Positive performance effects of engaging in international activity are found especially in firms from less advanced economies that interact with partners from more advanced economies. Lowering barriers to the international division of labor should therefore be part of any pro-growth policy.MoreLess
Trade liberalization and gender inequality Updated
Can free-trade policies help to reduce gender inequalities in employment and wages?Janneke Pieters, October 2018Women consistently work less in the labor market and earn lower wages than men. While economic empowerment of women is an important objective in itself, women's economic activity also matters as a condition for sustained economic growth. The political debate on the labor market impacts of international trade typically differentiates workers by their educational attainment or skills. Gender is a further dimension in which the impacts of trade liberalization can differ. In a globalizing world it is important to understand whether and how trade policy can contribute toward enhancing gender convergence in labor market outcomes.MoreLess
Effects of regulating international trade on firms and workers
The benefits of trade regulation increase when workers are mobileRaymond Robertson, June 2018Economists have shown that international trade increases economic growth, with trade liberalization and integration having characterized the last 50 years. While trade can increase national welfare, recent estimates from both developed and developing countries show that labor market adjustment costs matter. Regulating trade, defined as adding or removing tariffs and other trade barriers, is not the best way to help lower-income workers who suffer from trade-induced losses. Policies that reduce adjustment costs may increase aggregate welfare more than regulating trade flows does.MoreLess
Trade and labor markets: Lessons from China’s rise
The China Shock has challenged economists’ benign view of how trade integration affects labor markets in developed countriesDavid H. Autor, February 2018Economists have long recognized that free trade has the potential to raise countries’ living standards. But what applies to a country as a whole need not apply to all its citizens. Workers displaced by trade cannot change jobs costlessly, and by reshaping skill demands, trade integration is likely to be permanently harmful to some workers and permanently beneficial to others. The “China Shock”—denoting China’s rapid market integration in the 1990s and its accession to the World Trade Organization in 2001—has given new, unwelcome empirical relevance to these theoretical insights.MoreLess
How does international trade affect household welfare?
Households can benefit from international trade as it lowers the prices of consumer goodsBeyza Ural Marchand, August 2017Imported products tend to have lower prices than locally produced ones for a variety of reasons, including lower labor costs and better technology in the exporting country. The reduced prices may lead to wage losses for individuals who work in the production of a local version of the imported item. On the other hand, lower prices may be beneficial to households if the cheaper product is in their consumption basket. These welfare gains through consumption, on average, are found to be larger in magnitude than the wage effect for some developing countries.MoreLess