Virtually all of the studies that quantify the adjustment costs of trade liberalization relative to the benefits point to the conclusion that adjustment costs are small in relation to the benefits of trade liberalization. The explanation for low adjustment costs is that: These costs are typically short-term and end when workers find a job, but the benefits grow as the economy does. Unemployment doesn't last long, especially where workers'pay was not substantial in the original job. Normal labor turnover often exceeds job displacement from trade liberalization. Moreover, studies that examine the impact of trade liberalization on employment in developing countries find there is little decline--and usually an increase--in manufacturing employment in developing countries a year after trade liberalization, for three reasons: 1) Developing countries tend to have comparative advantage in labor-intensive industries, and trade liberalization tends to favor labor. 2) Inter-industry shifts occur after trade liberalization, which minimizes the dislocation of factors of production. 3) In many industries, normal labor turnover exceeds dislocation from trade liberalization, so downsizing, when necessary can be accomplished without much forced unemployment. The authors recommend a uniform tariff to minimize special-interest lobbying for protection since it diffuses the benefits of protection.
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David G. Blanchflower & Andrew J. Oswald, 1990.
"The Wage Curve,"
NBER Working Papers
3181, National Bureau of Economic Research, Inc.
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Blanchflower, D. & Oswald, A., 1989.
"The Wage Curve,"
Papers
340, London School of Economics - Centre for Labour Economics.
Jacobson, Louis S & LaLonde, Robert J & Sullivan, Daniel G, 1993.
"Earnings Losses of Displaced Workers,"
American Economic Review,
American Economic Association, vol. 83(4), pages 685-709, September.
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Panagariya, Arvind & Rodrik, Dani, 1993.
"Political-Economy Arguments for a Uniform Tariff,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(3), pages 685-703, August.
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