Employment and the Political Economy of Trade: A Structured Review of the Literature

The aims of this paper are to review the main schools of thought on the political economy of trade and employment, to review the empirical evidence supporting these schools, and to consider the implications for public policy. Special emphasis is given to the potential costs of liberalization and the manner that concerns about these costs may inhibit countries‘ willingness to open markets and thereby limit the potential gains from trade. These issues are explored through a structured examination of the political economy literature, including the contributions of political scientists, economists, and historians, focusing on the role of different types of political actors in the formation of policy concerning trade-and-employment issues. Those actors include the general public (the members of which are simultaneously workers, consumers, and voters); economic interests (firms, associations, and labour unions); and policy makers in both the executive and legislative branches of government. The paper proceeds in three steps, the first being to define each of the main schools of thought. The next step is to review empirical studies that have tested the validity of these schools of thought. The third and final step is to consider complementary policies.