Trade Liberalization and Employment Effects in Ukraine

Abstract

This paper addresses a controversial issue in the current literature, namely the effects of trade liberalisation on labour market job flows. It studies the case of Ukraine where we view the sudden openness of the economy to trade as a quasi-natural experiment. We use disaggregated data on manufacturing industries and customs data on trade flows according to the shifting trade patterns after the disintegration of CMEA trade regime. We provide some first evidence that 3-digit NACE sector job flows are driven by idiosyncratic factors within industries. Other things equal, there is increased labour shedding as larger non-state share in industry relates to less job creation and more job destruction. Trade openness does affect job flows in Ukrainian manufacturing disproportionately according to trade orientation. We find that while trade with CIS decreases job destruction, trade with the EU increases excess reallocation mainly through job creation.