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Labor Markets in Regional Trade Agreements: What Do We Know?

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  • de Melo, Jaime
  • Regolo, Julie

Abstract

Globalization has failed to relax barriers to the movement of labor, especially unskilled workers. So have North-South Regional Trade Agreements (RTAs), while South-South RTAs have failed to implement good intentions. A literature review of the labor effects of RTAs underscores context specificity precluding generalizations across categories of RTAs. Most ex-ante studies have focused on global welfare effects rather than anticipated labor market effects while ex-post studies have had difficulty isolating any direct effects attributable to implementation of the RTA because of confounding effects as illustrated by a discussion of the wage puzzle in Mexico under NAFTA. The survey reviews labor market and wage results from ex-ante CGE estimates and ex-post household-based econometric estimates. A review of the response of manufacturing firms and plants to the large reductions in tariffs under CUSFTA, MERCOSUR, and NAFTA reveal significant adjustments. Under CUSTTA, in Canadian manufacturing short-run employment losses were large while productivity gains were equally large and the market access to the US led Canadian firms in the bottom of the distribution of labor productivity to engage in investment in technology upgrading. In MERCOSUR and NAFTA, an upgrading in technology was also observed among the firms that were led to enter (or to increase) their exports to RTA partners (Brazil for Argentine firms and the US for Mexican firms). These firms also increased their demand for skilled labor suggesting that the FTA contributed to an increase in the skill premium.

Suggested Citation

  • de Melo, Jaime & Regolo, Julie, 2013. "Labor Markets in Regional Trade Agreements: What Do We Know?," CEPR Discussion Papers 9661, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:9661
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    1. Ayça Tekin‐Koru & Andreas Waldkirch, 2010. "North–South Integration and the Location of Foreign Direct Investment," Review of International Economics, Wiley Blackwell, vol. 18(4), pages 696-713, September.
    2. Balistreri, Edward J. & Rutherford, Thomas F., 2013. "Computing General Equilibrium Theories of Monopolistic Competition and Heterogeneous Firms," Handbook of Computable General Equilibrium Modeling, in: Peter B. Dixon & Dale Jorgenson (ed.), Handbook of Computable General Equilibrium Modeling, edition 1, volume 1, chapter 0, pages 1513-1570, Elsevier.
    3. Fernando Borraz & Máximo Rossi & Daniel Ferres, 2012. "Distributive Effects of Regional Trade Agreements on the ‘Small Trading Partners’: Mercosur and the Case of Uruguay and Paraguay," Journal of Development Studies, Taylor & Francis Journals, vol. 48(12), pages 1828-1843, December.
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    More about this item

    Keywords

    Labor markets; Regional Trade Agreements;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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