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Title:Making sense of Bolkestein-bashing: trade liberalization under segmented labor markets PDF Logo
Authors:Saint-Paul, Gilles
Issue Date:2005
Series/Report no.:IZA Discussion Papers 1618
Abstract:Trade liberalization is often met with sharp opposition. Recent examples include the so-called Bolkestein directive, which allows service providers from a given EU member to temporarily work in another member country. One way to view such a reform is that it simply widens the range of goods that are tradeable. This kind of reform is analyzed in a two-country Dornbusch-Fischer-Samuelson style model, where labor cannot relocate to another sector upon a non expected increase in the range of goods that can be traded. The effect of liberalization on the terms of trade tends to favor the poorer country (the East), if (as assumed) the most sophisticated goods are tradeable before reform. Second, under ex-post liberalization, there exists a class of workers in the West who are harmed because they face competition from Eastern workers and cannot relocate to other activities. But if the East's economy is relatively small, their wage losses are not very large. Things are different, however, if there exist asymmetries in labor market institutions, such that upon reform, labor can relocate in the East but not in the West. Some workers in the West can then experience very large wage losses. Thus, rigid labor markets in the West magnify opposition to reform there.
Subjects:trade liberalization
European integration
Bolkestein directive
labor mobility
labor market institutions
comparative advantage
terms of trade
JEL:F16
F11
F13
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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