ILO/WBI Geneva Dialogue on Trade and Labor: Economic slowdown, openness to trade and labor market adjustment

The world is facing a major economic downturn. Forecasts for 2009 predict a contraction in global trade of 9%. Trade growth, usually a source of rising incomes, has now become a channel through which recessionary forces in the North are transmitted to the South. Yet, maintaining openness to trade is essential for rekindling growth when recovery begins. Openness – and reforms that open markets further – necessarily imply change in the allocation of resources – labor as well as capital – to be able to realize productivity gains. Reducing trade barriers increases competition, driving least efficient producers from the market and requiring labor to adjust. While the overall effect of opening to world markets is usually to increase welfare because of productivity gains and a more efficient reallocation of resources, a well-defined labor market policy can help labor move from inefficient sectors to internally competitive sectors with a minimum of dislocation.

This seminar aims to shed light to two issues: First, how can countries cope with the employment distress caused by the global recession and the likely developments. Second, how can labor market and trade policy reforms help countries’ economies help reallocate labor to revive growth? This dialogue is an opportunity for policy makers to think about linkages between global recession, trade policy and labor market adjustment. We hope it will contribute to linking two policy domains that are often discussed in separate forums.