D1.3 Employment outcomes and distributional consequences of trade policy

Deliverable

D1.3 Employment outcomes and distributional consequences of trade policy

Executive Summary

This deliverable will gather three contributions: The first two contributions deal with econometric works on labor markets and the third one proposes improvement of the MAGNET simulation model.

The first contribution deals with the French labor market. It works on the issue of trade, wage adjustment, and job reallocation. The work is based on worker-firm matched data in France. The objective is to study the impact of import competition from low-wage countries on employment and wage trajectories of workers. Recent trade theory finds
that workers in low-productivity firms lost their jobs and are reallocated in firms with higher productivity. The first results show that the import competition leads to a reallocation of workers towards more productive firms. However, the wages of displaced workers do not increase. We also observe strong heterogeneity in this reallocation process across occupation. We find that the wage of engineers increases while the workers belonging to administrative and technical staff and employed in trade-exposed industries accumulate substantially lower earnings over the two last
decades.

The second contribution proposes the first empirical assessment of the impact of trade liberalization on local labour market dynamic in the EU countries. The study is based on employments data at NUTS 2 level, focusing on the EU15 countries agri-food sectors, over the 1995-2019 period. Methodologically, we applied the shift-share research
design, recently popularized by labour economists. This means to allocate at territorial level the trade shock (shift), by exploiting the initial regions’ industry structure (share) of the economy. We applied this methodology to measure the sectoral employments elasticity to trade liberalization focusing on both import-competition and export expansion. Main findings clearly show that regions more exposed to import competition experience a jobs loss, while regions more exposed to export expansion experience new jobs creation. These overall effects mask important heterogeneity at sectoral level – with food jobs more sensitive to trade shocks in comparison to agricultural jobs – and by origins and destinations – with EU15, OECD and NMS countries’ trade quantitatively more relevant than trade with China.

The third contribution propose to improve the modelling of employment and wages impacts in MAGNET Model. These extensions provide a range of new indicators on changes in employment and income for five types of occupations. While only providing a partial assessment of changes in income by not capturing capital income nor government transfers, it does provide an insight in changes a key source of income for many households. Quantifying changes in employment and wages provides important first insight in the distributional impacts of (trade) policies. This may affect the general public acceptance as well as help identify vulnerable groups of workers that may need income support.