The effect of international trade on labour-demand elasticities: empirical evidence from Tunisia

Abstract

This paper investigates the effects of trade liberalization on labour demand elasticities. The employment demand equation is estimated by using data for manufacturing industries in Tunisia covering the period from 1971 to 1996. The empirical results suggest a weak support for the idea assuming that trade liberalization will lead to an increase in labour demand elasticities: in the vast majority of industries considered, we cannot reject the hypothesis of no relationship between trade openness and labour-demand elasticities. This weakness of labour demand elasticity in practice is perhaps explained by the tight labour market regulations in place during the 1987–1996. However, these results are robust to the type of labour considered (contract labour and permanent labour). This supports the conclusion that under liberalization labour markets have become more flexible, and that employers prefer recruiting contract workers.