Impact of trade reforms in Tunisia on the elasticity of labour demand

Abstract

The impact of trade reforms on the labour market may transit through many channels. One of these is the effect on labour demand elasticity. No consensus has been established yet in the empirical literature regarding this relationship. This paper decomposes labour into skilled and unskilled categories in order to analyse the effects of trade policies on labour demand elasticities by skill in Tunisia. We use dynamic panel techniques to estimate a model of employment determination which incorporates the effects of trade and takes into account the delay of labour adjustment. Our database covers 529 Tunisian firms from 6 manufacturing sectors over the period 1997–2002. Results suggest that a decrease in trade protection in Tunisia increases the elasticity of unskilled labour demand while it contributes to reduce the elasticity of skilled labour demand.