How international trade shapes gender gaps in employment

We often associate globalization with the availability of more products for a more affordable price. But the impact of globalization goes beyond the availability and pricing of goods. While the academic consensus is that globalization has made us better off overall, the discourse equally recognizes that not everyone benefited from it. Recent research by Pamela Medina, Hani Mansour, and Andrea Velásquez shows that people with less education – and women specifically – are particularly vulnerable to the consequences of globalization.[1] Through the analysis of national household survey data, the authors found that with increased trade, women with lower levels of education are more likely to drop out of the labor force or switch employment sectors.

The signing of the General Agreement on Tariffs and Trade (GATT) in 1947 and the subsequent establishment of the World Trade Organization (WTO) in 1995 resulted in a decrease in tariffs and improved access to international trade partners. As a result, international trade soared. Since the establishment of GATT, international trade volume increased by 4300%.[2] However, these benefits are not equally distributed across countries, institutional sectors, or sociodemographic groups. The work by Mansour, Medina, and Velásquez zooms in on this issue.

“The authors found that with increased trade, women with lower levels of education are more likely to drop out of the labor force or switch employment sectors.”

As Medina, Assistant Professor at University of Toronto, puts it: “There is a vast literature in trade looking at the effects on workers, analyzing effects on employment and their subsequent impact on health outcomes, and even death. Within this literature, there is an understanding that some workers will be more affected than others. Recent studies have looked at who are these workers, and why are they more affected? We believe one of these important angles to consider regarding this impact is gender.” The issue is that these past studies don’t allow us to examine gender because they focus on developed countries where, more often than not, the affected industries are heavily men-dominated, making a comparison across gender difficult.

Therefore, the researchers turned to Peru to compare the effect international trade has on men and women. Trade plays a vital role for the country. The authors study one significant expansion in Peru’s trade relations: in 2001, China was admitted to the World Trade Organization. This admission resulted in a decrease in tariffs on products imported from China. Medina remarks that Peru provides the perfect conditions to study how international trade affects men and women workers because the sudden and significant increase in trade with China impacted sectors where both women and men workers were well represented. Examples of those industries are apparel, textiles, furniture, and electronics.

Medina and her co-authors show that this new, large trading partner had a noticeable impact on Peru’s labor market. In the years following China’s joining the WTO, sectors affected by trade showed a relative decrease in employment share, a finding in line with other studies. When they looked more closely to see whether the trade shock impacted men and women equally, they found that this was not the case. Medina remarks that the effect on men’s unemployment disappeared after ten years, but the effect on women’s unemployment did not.

The researchers find that the difference can be attributed to industry-specific factors. Women in the tradable sector (examples of which are copper, textiles, pharmaceuticals, machinery) were disproportionally affected by the trade shock. “We find that, while men could reallocate within manufacturing to other growing sectors, women couldn’t and some of them were absorbed by the service sector, but some of them had to leave the labor force altogether.” This is particularly true for women who have fewer years of formal education. As Medina notes, this did not happen to men. That is, men didn’t show that pattern of sector-switching or exiting the labor force.

“Medina remarks that the effect on men’s unemployment disappeared after ten years, but the effect on women’s unemployment did not.”

However, why women’s response to the trade shock is so different from men’s remains an open question – a question Medina wished she had the data to answer. In particular, she says “we would have liked to have more data on how the environment for the women […] changed.” This would have allowed them to analyze what was different for the women who could reallocate compared to those who could not. Was there a difference in social norms, alternative opportunities, or in the need for household work ? We can’t say for sure.

But for now, she hopes that her work is being taken seriously by policy makers. “We want to highlight the fact that men and women face different adjustment labor costs, ” Medina notes. “It is important to identify and quantify them in order for the government to be able to put in place policies to mitigate the adverse effects of trade and redistribute gains.” In other words, governments need to measure the extent to which their trade and employment policies impact socio-demographic groups differently, for example in the form of a gender-based analysis.

Gender-based analyses allow policy makers to develop more targeted interventions leading to more equitable outcomes. We can turn to the COVID-19 pandemic for illustration. Data from many countries have shown that women were disproportionally more likely to exit the labor market during that period, oftentimes to provide educational support to their children and care for the sick.

At the same time, some governments developed large financial aid packages to mitigate these effects. The International Monetary Fund published a report with a battery of policy interventions which would allow a government to use those financial aid packages towards a more equitable outcome.[3] One concrete example comes from Chile. The country made it more attractive for companies to re-activate suspended contracts, and subsidized employment contracts for women, young people, and persons with disabilities.

The researchers think that policy makers shouldn’t stop short at the gendered effects of trade shocks on labor market outcomes: Medina poses that they may have social and demographic consequences, such as marriage and fertility decisions, too – a consideration their team is currently investigating.

References

[1] Mansour, Hani, Pamela Medina, and Andrea Velásquez. 2022. “Import Competition and Gender Differences in Labor Reallocation.” Labour Economics 76 (June): 102149.

[2] World Trade Organization. n.d. “Evolution of Trade under the WTO: Handy Statistics.” Accessed November 17, 2022. https://www.wto.org/english/res_e/statis_e/trade_evolution_e/evolution_trade_wto_e.htm.

[3] Tang, Vincent, Aroa Santiago, Zohra Khan, David Amaglobeli, Esuna Dugarova, Katherine Gifford, Laura Gores, et al. 2021. “Gender Equality and COVID-19: Policies and Institutions for Mitigating the Crisis.”IMF | Fiscal Affairs. Accessed November 22, 2022.

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Research brief prepared by:

Manuela R. Collis