There is widespread evidence on the positive effects of trade opening on reallocation and productivity in both developed and developing countries. However, much less is known about the effects of trade on workers displaced due to trade-related reallocation in developing countries. In this research, the authors consider the impacts of a large trade reform on worker’s wages, employment and unemployment spells in Colombia. Using the National Household Surveys for the years 1988 to 1998, they found that workers employed in less protected sectors earn lower wages, are less likely to be employed in the formal sector and have shorter tenures, after controlling for individual characteristics and year and sector effects, and that these effects are bigger for less-educated workers. In addition, it was found that workers displaced due to plant closings during the period of trade liberalization also have lower wages and tenure and are less likely to be employed in the formal sector within the first two years after displacement, but that their wages, and quality and duration of employment recovers after three years of displacement. The time of recovery after displacement is faster than what is observed in the U.S. and other developed countries. On the other hand, it was found that workers coming from less protected sectors experience shorter spells of unemployment, especially when they stay in the same sector and unemployment rates are low. Since trade opening hurts those currently employed but facilitates reallocation for those who end up unemployed, the authors also examined the overall effect of trade on household income using quantile regressions.
Kugler, Maurice (2010) Trade Liberalisation, Job Reallocation and Poverty: Employment and Earning Losses after Worker Displacement ESRC End of Award Report, RES-167-25-0121, ESRC, Swindon, UK