Trade and Labour Research in Developed Countries · – examines the welfare gains from eliminating all U.S. ... of the labour-adjustment costs associated with changes ... Oliver

06/04/2005 ESRC presentation

Trade and Labour Research in Developed Countries


Introduction

– Current theoretical approaches– Current empirical approaches– Data requirements– Econometric Techniques


Introduction

– Why does free trade remain controversial?– The importance of adjustment and worker dislocation.

• Costs traditionally viewed as small relative to the benefits of trade

• Magee (1972) – examines the welfare gains from eliminating all U.S.

trade-related restrictions. – ratio of welfare gains to adjustment cost is

estimated to be 100 to 1.• Baldwin, Mutti, and Richardson (1980)

– Include capital adjustment costs– “In the aggregate, the calculated gains from trade

liberalization dwarf the measured adjustment costs by a ratio of almost 20 to 1.” (p. 405)


Previous Studies

– Very large literature:• Grossman (1986, 1987)• Branson and Love (1988)• Revenga (1992)• Sachs and Shatz (1994)

– developed and developing country trade. – Changes in the pattern of trade lowered

employment levels (1978-1990) by 7.2% for production workers and 2.1% for non-production workers.

• Greenaway, Hine and Wright (1999) for the UK


Job Creation and Job Destruction

– Recent research on labour-market dynamics suggest that these estimated impacts of trade on labour markets may be seriously misleading.

– Changes in industry total net employment are much smaller than the underlying increases and decreases in employment occurring simultaneously at individual establishments within industries.

– A more complete understanding of labour-adjustment costs, and thus of the net efficiency gains from trade, requires the analysis of gross labour flows.


– Two kinds of data allow us to understand the dynamics of the labour market better.

• job creation and destruction rates within firms• worker flows between the jobs that are available







• Job destruction and creation are clustered in a small segment of units that are expanding or contracting.

• Such units generally make large adjustments, often amounting to more than 20% of their total workforce.

• Studies on U.S., Canadian, Danish, and Israeli data (see Davis and Haltiwanger, 1999) find that more than two thirds of job destruction is carried out by firms that adjust their workforces by more than 20%.

Summary• The extent of gross job creation and destruction relative to

net variations, and the preponderance of within-sector reallocation, are characteristics shared by G5 countries.



Worker Flows


Worker Flows


Worker Flows


Theoretical Developments

– Labour market characterised by intense activity as jobs and workers are reallocated.

– Reallocation is a necessary part of a dynamic economy– Labour market reallocation may be costly

• Unemployment • Retraining• Regional movement• Wage reductions

• Hiring, firing and training costs


Job and Worker Flows







– Models that explicitly integrate labour market flows have gradually come to the fore.

– Matching models

– ‘Conditions of full employment are necessary to validate standard propositions of trade theory. High unemployment calls many of these propositions into question. Both the positive predictions of trade theory and its normative predictions may be wrong.’ Blinder (1988)



• Davidson, Martin and Matusz (1999)• Add unemployment to the HOS model. Trade dislocated

labour must search for another job.

• Davidson and Matusz (2003)• Include fix costs of adjustment.• Calculate that short run adjustment costs could amount

to 30-80% of the long run gains from trade.

• Theoretical model still relatively simple.• Use a calibrated model which needs empirical

validation.


Empirical Developments

• Data Requirements• Firm level employment: job creation and job

destruction• Davis, Haltiwanger and Schuh (1996)• Gourinchas (1998, 1999)• Klein, Schuh and Triest (2003 a,b)

• Nature of the jobs created destroyed• Temporary or permanent (KST, 2003 c)• Hiring, training and firing costs

• Abowd, Corbel and Kramarz (1999)


Future Developments

• Matched firm-worker data• How long are individuals unemployed?• What training do they receive?• What occupations/sectors do they move to?• What are their subsequent wage outcomes?

• Plant and firm level export and import data• Data on services


Future Developments

• Techniques• Policy evaluation literature (Blundell & Costa-Dias,

2000; Cobb-Clark & Crossley, 2003)– the use of matched control samples– difference in difference estimators

• Fallick (1996)• Heckman, LaLonde and Smith (1999) • Eliason and Storrie (2004)


Conclusions

• Gross flow research offers a more complete evaluation of the labour-adjustment costs associated with changes in international factors

• A need to develop joint measures of gross job flows and worker flows at the firm and establishment level

• International trade data at this level of disaggregation• Future work should see to study gross job and worker

flows jointly. This is because they are determined jointly.

Documents

Trade and Labour Research in Developed Countries · – examines the welfare gains from eliminating all U.S. ... of the labour-adjustment costs associated with changes ... Oliver