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Making Sense of Bolkestein-Bashing: Trade Liberalization under Segmented Labor Markets

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  • Saint-Paul, Gilles

    ()
    (University of Toulouse I)

Abstract

Trade liberalization is often met with sharp opposition. Recent examples include the so-called "Bolkestein" directive, which allows service providers from a given EU member to temporarily work in another member country. One way to view such a reform is that it simply widens the range of goods that are tradeable. This kind of reform is analyzed in a two-country Dornbusch-Fischer-Samuelson style model, where labor cannot relocate to another sector upon a non expected increase in the range of goods that can be traded. The effect of liberalization on the terms of trade tends to favor the poorer country (the "East"), if (as assumed) the most sophisticated goods are tradeable before reform. Second, under ex-post liberalization, there exists a class of workers in the West who are harmed because they face competition from Eastern workers and cannot relocate to other activities. But if the East's economy is relatively small, their wage losses are not very large. Things are different, however, if there exist asymmetries in labor market institutions, such that upon reform, labor can relocate in the East but not in the West. Some workers in the West can then experience very large wage losses. Thus, rigid labor markets in the West magnify opposition to reform there.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1618.

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Length: 33 pages
Date of creation: May 2005
Date of revision:
Publication status: published in: Journal of International Economics, 2007, 73 (1), 152-174
Handle: RePEc:iza:izadps:dp1618

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Keywords: trade liberalization; European integration; Bolkestein directive; labor mobility; comparative advantage; labor market institutions; terms of trade;

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References

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Cited by:
  1. Lars Calmfors & Giancarlo Corsetti & Michael P. Devereux & Gilles Saint-Paul & Hans-Werner Sinn & Jan-Egbert Sturm & Xavier Vives, 2008. "Chapter 3: The effect of globalisation on Western European jobs: curse or blessing?," EEAG Report on the European Economy, CESifo Group Munich, CESifo Group Munich, vol. 0, pages 71-104, 02.
  2. Ana Lamo & Julian Messina & Etienne Wasmer, 2007. "Are Specific Skills an Obstacle to Labor Market Adjustment? Theory and an Application to the EU Enlargement," CSEF Working Papers, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy 172, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  3. Joseph F. Francois & Bernard Hoekman, 2009. "Services Trade and Policy," Economics working papers, Department of Economics, Johannes Kepler University Linz, Austria 2009-03, Department of Economics, Johannes Kepler University Linz, Austria.
  4. Niklas Potrafke, 2013. "Globalization and Labor Market Institutions: International Empirical Evidence," Ifo Working Paper Series Ifo Working Paper No. 154, Ifo Institute for Economic Research at the University of Munich.
  5. Alexandre Janiak, 2008. "Mobility in Europe - Why it is low, the bottlenecks, and the policy solutions," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 340, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  6. Bank for International Settlements, 2010. "Globalisation, labour markets and international adjustment - Essays in honour of Palle S Andersen," BIS Papers, Bank for International Settlements, Bank for International Settlements, number 50, 8.

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