International trade and the labor market.

Summary The theory of factor proportions, and the Stolper-Samuelson theorem in particular, remains the mainstay of the analysis of the influence of international trade on the labor market of industrialized countries. We argue that this view is simplistic, in that international trade does not only induce inter-sectoral reallocations. It is also a vector of increased competitive pressure, the effects of which are felt within sectors. We propose a first concrete illustration by showing that trade increases the average efficiency of sectors, through increased selection of firms. Beyond this aspect alone, various arguments suggest that international trade can modify the nature of the productive apparatus within sectors. The econometric estimates presented here confirm this by showing that an increase in imports in a sector leads to an increase in apparent labor productivity and an increase in the average skill level of the workforce. We then propose an evaluation of the resulting impact on relative wages, using a computable general equilibrium model. We then integrate an adapted model of the labor market (ws-ps model). The overall effect of trade intensification on the aggregate real income of "rich" economies remains positive. Nevertheless, the impact of international trade on the wages and/or unemployment of the unskilled appears significantly unfavorable. The simulations also show that the impact of trade between industrialized countries is comparable or even greater than that of trade with poor countries. Finally, we argue that trade openness can also increase the price elasticity of labor demand.