Preferential Trade Agreements and the Labour Market

Employment Working Paper No. 117

The labour market, and in particular employment/unemployment effects, is probably the main concern of most people when they hear about trade liberalization.
Surely this is in part due to the actual labour market consequences of trade liberalization.
But it also reflects hopes and concerns fomented by policymakers. Whenever they want to promote trade liberalization, it is argued that a more liberal trade regime will create jobs, and good jobs in particular. In turn, if a policymaker wishes to criticize a plan to liberalize trade, he/she will surely point toward the resulting loss of jobs, especially the good ones. While seemingly contradictory, both of these views are to some extent correct—and this is what allows the policymakers to vindicate themselves ex post. After all, subsequent to any process of trade liberalization we should expect some new jobs to be created, of which a share will be in high-paying occupations, and some old ones to be lost, of which a fraction will be high-paying too.