The Impact Initiative has closed. This website has now been archived and will no longer be updated.
The Impact Initiative has closed. This website has now been archived and will no longer be updated.

Trade Liberalisation, Job Reallocation and Poverty: Employment and Earning Losses after Worker Displacement

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Photo: Making fishing nets - vocational training. Credit: Russell Watkins/DFID/Flickr - CC BY-2.0

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Principal Investigator: Maurice Kugler. Lead Organisation: Harvard University

This project analyses costs that trade liberalisation imposed on workers in Colombia, with particular attention to effects on those earning relatively low wages. The Colombian experience of market reform, including trade liberalisation, typifies policies increasing openness to international trade, which have been pervasive in developing countries.

Trade liberalisation may enhance productivity growth, helping poverty alleviation, when resources are reallocated from inefficient to efficient producers. As less productive plants shut down, some less skilled workers lose their jobs. Job reallocation implies substantial hardship for workers at the lower tail of the income distribution, especially in developing countries where social safety nets are scarce.

Employment and earning losses after worker displacement can induce poverty if they are persistent. In particular, in the absence of training programmes to enhance the prospects of displaced workers to find jobs, skill atrophy may have lasting effects on vulnerable workers. Unskilled workers, with earnings about minimum wage, when facing unemployment struggle to meet basic household needs.

Inefficient sectors and producers inevitably contract due to intensified international competition. The study provides lessons on policies that developing countries facing globalization can implement to reduce the risks of poverty associated with lengthy jobless spells for unskilled workers.

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Grant Category: 
Research Grant
Lead Organisation Department: 
Center for International Development
Fund Start Date: 
October 27th, 2008
Fund End Date: 
April 30th, 2010
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