Trade and Jobs

Getting the policy mix right to better support employment with open markets

Trade is generally regarded as a source of growth, development and jobs. In recent decades trade has expanded significantly, thanks in large part to advances in transportation and digital technologies, alongside progressive market opening through multilateral, regional and bilateral trade agreements. This process has helped create jobs in developed and developing economies alike, and has helped bring millions out of poverty.

Open trade regimes are associated with higher wages and improved opportunities

Trade allows firms to purchase goods and services from the most efficient sources combining cost competitive with quality – regardless of location – and to sell their goods and services to consumers in more markets, reducing averge costs and prices. For consumers, trade means more choice and lower prices, accessing goods and services not available in the home market, or goods at a more competitive price. analysis looking at the impact of global value chains on jobs confirms that a large share of employment across countries and in key emerging economies relies on trade. In a large country like the United States, around 10% of the workforce is involved in producing goods and services that are consumed abroad; the share goes up to 20% for France, almost 30% for Germany and 47% for a small open economy like Ireland.

Numerous studies also show that trade plays an independent and positive role in raising average incomes. Compared with firms that do not trade across borders, exporting firms are usually more productive and pay higher-than-average wages to their employees. A recent study on Market Opening, Growth and Employment found that multilateral trade liberalisation could increase wages by up to 4% in the regions studied, with low income regions experiencing the strongest increases in wage growth (though also the highest variation among different sectors).

In a broad sample of open and closed economies around the world examined over a 30-year period, the International Collaborative Initiative on Trade and Employment study showed that open economies also outperformed closed ones in working conditions, including fatal accidents and life expectancy, and generally had greater respect for labour rights.

What can policymakers do to help workers take advantage of trade, while also supporting trade-displaced workers?

While trade liberalisation is beneficial for the overall economy, some parts of the economy benefit more than others; and in some cases, production activities decrease and workers lose jobs. Such shifts within an economy often also involve wage adjustments. While the reallocation of these resources is necessary for firms and their workers to maintain their competitiveness, not all resources are able to be reallocated, and many unemployed workers find it difficult to find new employment.

The adjustment process is not always automatic and takes time to occur. There are further complications as production is often regionally clustered, meaning there is also a regional dimension to adjustments, with losses often concentrated in certain geographic regions. Efficient adjustment requires investments by governments to enable workers to move between sectors by, for example, ensuring the necessary information is available to job seekers and that social safety nets are available to help support workers and their families undergoing change.

In this context, and the increasing pace of change, it is important to get the policy mix right, both for the workforce of today and our job-seekers of tomorrow. For more workers to share in the benefits of trade, a more integrated policy approach is needed to make the whole system work better for more people.

This means continuing pursue the economic gains and opportunities for inclusive growth that come from open markets by removing the barriers and reducing the costs that can prevent people and firms, especially small firms, from participating in trade. At the same time, it means protecting workers, not jobs. Protecting a limited number of jobs in a specific sector through trade barriers comes at the cost of competitiveness and jobs in related sectors. Resources can be better devoted to training and support programmes, including for more people.

Protecting workers also means going beyond traditional adjustment assistance to the full range of investments for inclusive growth: from health and education to activation frameworks that make work pay; from labour market inclusion to promoting mobility by linking entitlements to people, not jobs; and from well-designed income support and counter-cyclical social spending and targeted measures to revitalise regional economies, where trade shocks can be concentrated.