Sharing the Costs: The Impact of Trade Reform on Capital and Labor in Morocco

The authors examine the impact of recent trade reforms. Although employment in the average private sector manufacturing firm was unaffected, there were significant employment losses to exporters and highly affected firms. Parastatals increased employment by hiring low-paid temporary workers. Many firms did not adjust wages or employment. The authors examine two possible explanations. First, barriers to labor market mobility could have impeded adjustment. Second, the authors develop a model of labor demand which allows for imperfect competition and endogenous technological change. Their results suggest that, although labor markets were flexible, many firms cut profit margins and raised productivity rather than reducing employment. Copyright 1997 by University of Chicago Press.