Labour market reforms in a globalised world

In the traditional model of international trade, labour market reforms in one country are often viewed as beggar-thy-neighbour policies, because they negatively affect the competitiveness and employment levels of the country’s trading partners. Empirical evidence, however, suggests that this is not the case. By addressing labour market reforms in the context of intra-industry trade, this article explains how such reforms, while boosting employment, ultimately reduce a country’s terms of trade, thereby benefitting the country’s trading partners. The authors call for more international policy coordination to achieve optimal outcomes.