The labour market effects of applied service regimes and service sector reforms

• Author: Anirudh SHINGAL,Pierre SAUVÉ
• DOI: http://doi.org/10.1111/ilr.12134
• Date: 01 March 2019
• Published date: 01 March 2019

International Labour Review, Vol. 158 (2019), No. 1

Copyright © The authors 2019

Journal compilation © International Labour Organization 2019

The labour market effects

of applied service regimes

and service sector reforms

Anirudh SHINGAL* and Pierre SAUVÉ**

Abstract. This article offers novel insights into the modal and sectoral characteris-

tics of trade in services that may exert an inuence on the redistributive properties

of liberalization in service trade and investment. It uses descriptive statistics, and

econometric analysis to examine the labour market effects of unilateral service re-

gimes, drawing on data from the OECD’s Services Trade Restrictiveness Index for

a sample of 44 OECD and non-OECD countries and 22 sectors over the period

2014–16 . Whereas the ndings suggest that the unilateral liberalization of services

is not associated with net labour displacement effects, the authors call for empirical

evidence, based on improved data sources, for a fuller understanding of this issue.

The labour market and distributional effects of the liberalization of trade

in goods has long been a subject of interest for trade and labour econo-

mists in both their theoretical and empirical work. From the seminal insights

of the Stolper–Samuelson theorem1 in 1941 to its subsequent renements in

multiple goods and production factor models, economists have drawn sustained

attention to how tariff changes affect the real returns of various factors of pro-

duction (Ethier, 1974; Jones and Scheinkman, 1977).

* Indian Council for Research on International Economic Relations, New Delhi, and

European University Institute, Florence, email: ashingal@icrier.res.in (corresponding author);

** Macroeconomics, Trade and Investment Global Practice, World Bank Group, email: psauve@

worldbank.org. The authors are grateful for comments and suggestions by Christian Viegelahn

and an anonymous referee, and to participants in the 2015 workshop of the Council on Eco-

nomic Policies (CEP) “Employment effects of services trade reforms”, held in Geneva, at which

a preliminary version of this article was presented.

Responsibility for opinions expressed in signed articles rests solely with their authors,

and publication does not constitute an endorsement by the ILO.

1 Among its many applications, the Stolper–Samuelson theorem has been used to ad-

dress the “trade and wages” debate, assessing the extent to which globalization in general, and

increased imports from low-wage countries in particular, can be held responsible, alongside

other forces such as skills-biased technological change, for the observed widening differentials

between skilled and unskilled wages in developed countries (Stolper and Samuelson, 1941). With

the two factors reinterpreted as skilled and unskilled labour, the simple version of the model

is consistent with observed widening differentials.

[Correction added on 6 November 2020, after initial online publication. A duplicate of

this article was published under the DOI 10.1111/ilr.12089, this duplicate has now been deleted

and its DOI redirected to this version of the article.]

International Labour Review192

Signicantly less attention has been devoted to the labour market effects

of service sector reforms, including those induced by changes in trade and in-

vestment policy.2 Responding to signicant changes in both the structure of

domestic economies and the shifting composition of cross-border trade and

investment activity, Feenstra (1998), Leamer (1998) and Jones (2000) offered

early theoretical insights testing the relevance of the Stolper–Samuelson the-

orem in a world characterized by the rising salience of trade in intermediate

products. In such a world, improved communications and lower transport and

trade costs have allowed large rms to fragment their operations across a

multiplicity of production sites and to move less-skilled and more labour-

intensive stages of production to countries where the supply of unskilled

workers is abundant and wages are correspondingly low. This results in a de-

pressive effect on unskilled wages in developed countries, while simultaneously

raising skilled wages in developing countries.

International trade models concerned with the distributional conse-

quences of market liberalization have traditionally focused on trade in goods

and the effects that changes in border taxation measures induce on returns to

factor movement. Grossman and Rossi-Hansberg (2008) rened the analysis

described above by developing a theoretical framework highlighting the in-

creasing tendency to trade in “tasks”, a process that has signicantly reduced

the link between labour specialization and geographical concentration and

highlighted the central role played by a host of business services in the off-

shoring of production. These changes have led to the growing “servicication”

of the world economy (Lodefalk, 2014; Kommerskollegium, 2012). The work of

Grossman and Rossi-Hansberg has spawned a large body of subsequent the-

oretical and empirical work exploring the labour market dynamics of offshor-

ing. This has fuelled a lively ongoing debate regarding the costs and benets

of an increasingly globalized world.

Empirical research in the eld of international trade continues to display

a clear bias towards the analysis of trade in goods, reecting a path depend-

ency that is naturally reinforced by considerably weaker data on cross-border

trade and investment in services. This article contributes to bridging this ana-

lytical gap by exploring how service sector reforms – in particular unilateral

liberalization initiatives (i.e. applied regulatory measures as opposed to com-

mitments in trade agreements) captured in the data from the Services Trade

Restrictiveness Index (STRI) published by the Organisation for Economic

Co-operation and Development (OECD) – affect employment in a sample of

44 OECD and non-OECD countries over the 2014–16 period.

A novel feature of this article is that it draws attention to a number of

characteristics of service markets and trade in services that may exert a strong

inuence on the redistributive properties of the liberalization of trade and in-

2 That being said, individual service sectors have lent themselves to related research.

For instance, Bloomeld et al. (2 017) examine the effect of regulatory harmonization on cross-

border labour migration in accountancy services and nd this effect to be positive relative to

other professions.