The impacts of trade liberalization on employment and wages in Tunisian industries

Abstract

This paper investigates short and long-run effects of trade liberalization on employment and wages. Employment and wage equations are estimated using data (1971–96) for importable and exportable industrial sectors in Tunisia. Causality tests show that causality is unidirectional. Wages strongly causes employment. There is significant difference in the direction of effects in the short and long-run. Empirical results only support the short-run theoretical predictions for the exportable sectors. A possible reason for the divergence of theory and practice is that the theoretical model is premised on the basis of a fixed supply of labour. Employment at exportable sectors could therefore only rise if employment at importable fell. However, as we have seen, the supply of labor increased dramatically in Tunisia as women entered the labour market. This allowed employment at importable sectors to be maintained as the exportable sector expanded.