Direct Employment Effects of Increased Imports: A Case Study of the Textile Industry

Abstract

The United States, Western Europe, and Japan have all been subjected to a great deal of protectionist sentiment during the five year period following the meeting of ministers at Tokyo in September 1973. In the U.S. this protectionist pressure has focused on expected job losses caused by reductions in domestic output as consumers switch to import substitutes. It is, therefore, extremely important for trade negotiators to possess sound estimates of the expected impact of trade liberalization on the domestic output and employment in the import substituting sector. Past research designed to provide these estimates of the influence of trade liberalization on domestic production and employment have utilized either a partial equilibrium' or a highly aggregated general equilibrium approach.2 The most notable of the partial equilibrium approaches developed by Baldwin [3], has as one of its basic premises that increased expenditure on imports reduces the expenditure on the domestic substitute by the full amount. Taking these output changes and multiplying by the corresponding set of labor requirements per unit of output, this approach will provide a set of direct and indirect employment changes. The purpose of this paper is to develop and test an alternative partial equilibrium model where the direct impact of increased imports on domestic production and employment of the competing domestic industry can be measured without restricting the changes in expenditure on the domestic good to equal that of the foreign good. Moreover the direct impact on employment is estimated through the use of a derived labor demand function rather than an input-output approach. The distinguishing feature of our partial equilibrium approach is

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