China caused South African manufacturing output to be 5 percent lower in 2010 and employment 8 percent lower than they otherwise would have been, as Chinese imports displaced output in labor-intensive sectors. Similar to Bastos and Santos’ findings, Erten, Leight, and Tregenna (2019) find that workers in districts facing larger tariff cuts experienced declines in formal and informal employment in the tradable sector (mostly in manufacturing) relative to districts less affected by cuts. Displaced workers did not find jobs in expanding sectors. They were instead more likely to exit the labor force or access government transfers. Although resulting in aggregate gains, trade liberalization reduced jobs in certain manufacturing sectors, while labor market rigidities and other constraints prevented workers from finding jobs in emerging sectors. The authors attribute this to the unusual features of the South African labor market such as the high base level of unemployment, the small informal sector, high barriers to entry, rigid wages, and an underdeveloped manufacturing sector before liberalization. What policies could be adopted to address the localized negative impacts of tariff liberalization? Certainly, facilitating geographical labor mobility across sectors, regions, and occupations could be key when mobility is lower. This could be done with welldesigned and targeted active labor market policies such as job search assistance and training. Other place-based policies may help revitalize areas depressed by trade shocks and strengthen regional cohesion.
Brazil: How Trade Shocks Affect Wages and Job Opportunities across Regions and Industries How do trade shocks affect workers? Answering this question requires an understanding of how trade shocks affect workers’ wages and the job options they can choose from. This is especially relevant in a country like Brazil, which has gone through major periods of trade liberalization reforms in the 1990s and 2000s and recently experienced sizable swings in external demand. We know from a large body of evidence that Brazil’s adjustment to a sharp rise in import competition has been painful, causing declines in wages and employment over time for microregions more exposed to import competition relative to others, along with substantial moving costs. Dynamic models of trade-induced labor mobility have explored wage differentials and idiosyncratic utility as drivers of mobility across sectors, regions, and occupations. One country case study—“Trade, Jobs, and Worker Welfare” by Artuç, Bastos, and Lee (2019)—breaks new ground by emphasizing an additional motive of mobility: the number of job opportunities provided by different sectors and regions. This new channel matters for workers for two key reasons. ■■
If a worker can choose a job from a larger pool of opportunities, the best one will probably deliver better welfare outcomes.
Lessons from Recent Cases of Trade Reforms in Developing Countries 63
