Introduction

In an era of globalization, linkages between international trade and labor markets are receiving intensified scrutiny. Many Organization for Economic Cooperation and Development (OECD) countries are preoccupied with the implications of expanded trade for employment growth and employment diversion (referred to in Europe as delocalisation). At the same time, more and more developing countries are concerned with how best to facilitate human resource development for trade-driven expansion. With increasing capital mobility and technology diffusion, the quantity and quality of domestic labor forces are ever more important determinants of comparative advantage. Structure and conduct in domestic labor markets can be just as important in this regard as labor endowments, however. As expanding trade has imbued commodity markets with greater competitiveness and flexibility, trade-induced domestic growth is placing new adaptive pressures on labor markets. Increasingly, labor market rigidities are being viewed as impediments to more effective participation in the global economy, as well as to more sustainable growth in output, employment, and average living standards.

While government and labor groups are understandably reluctant to abandon the social priorities which underlie many labor market interventions and distortions, the efficiency costs these confer upon their economies are often significant and usually not well understood. Despite a vast body of labor market research which has emerged in the last two decades, only a small part focuses on trade or empirical estimates of efficiency effects.