Abstract

Most economists agree that international trade improves welfare for all countries involved. However, international trade is not Pareto-improving, as it comes along with substantial distributional consequences within these countries. Globalization allows firms to sell their goods to new markets abroad and to exploit efficiency gains from offshoring intermediate inputs to countries with a comparative advantage in producing them. Yet, the winners of globalization face growing numbers of workers who are forced to adjust to structural changes. Changing from a job in a manufacturing industry that suffers from import competition to a job in a different industry or even outside of the manufacturing sector involves severe frictions. Even if one finds a new job quickly, there will be a loss of specific human capital. Typically, this implies significantly lower wages.

The losers of globalization tend to express their reservations at the ballot box. The past year has seen an unprecedented success of sceptics against globalization, even in some of the world’s most open economies. Although it is still unclear how ‘hard’ the Brexit will hit, it is rather likely that it will reinstate trade barriers between the UK and mainland Europe. Moreover, recent developments in US policy involve numerous uncertainties. President Trump promises the creation of domestic jobs by raising punitive tariffs on imported goods. One of his first official actions was to stop the ratification of the TPP free trade agreement. Throughout the world, skepticism towards free trade could lead to an upswing of populist parties in further countries. The forthcoming elections in France and Germany are decisive for Europe.

Because the last decades were marked by a secular decline of trade barriers, evidence on the effects of closing borders is scarce. Will a movement towards autarky restore domestic medium-wage employment in industrialized countries? Will it reduce inequality? Or will firms react by employing robots rather than men?

The aim of this workshop is to bring together leading economists working at the intersection of international economics and labor economics to discuss how the current threats against globalization affect the labor markets of industrialized countries. First, renowned speakers will present current research on related topics. In a following plenary discussion with leading representatives from research, politics, and interest groups, we will provide an outlook on the consequences of trade restrictions and protectionism for the labor market and discuss implications for economic policy.