Trade-Displaced Worker Adjustment

The impact of changing trade patterns on jobs is significant. Many workers lose their jobs as a result of trade-related shifts.

According to a recent OECD report, workers laid off from jobs in high-international-competition manufacturing industries in both the US and Eurpoe are slower to become re-employed than job losers in the service sector (where domestic factors account for most layoffs) and they more often become re-employed in new jobs that pay less than the lost jobs (see chart).

A striking difference between Europe and the United States is that large pay cuts on the new job are much rarer in Europe, whereas the risk of long-term unemployment is lower in the United States. Quicker re-employment of trade-displaced workers in the United States than in Europe probably reflects a greater capacity of American labour markets to shift workers from declining to expanding sectors. However, this flexibility imposes high costs on the considerable number of job losers who must accept large pay cuts to become re-employed.

Trade-displaced workers in the United States are under greater pressure than their EU counterparts to become re-employed quickly, because unemployment benefits are less generous and layoffs may also result in a loss of health insurance coverage.

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