If the studies conducted in developed countries on the impact of trade liberalization reveal a gap between the theoretical predictions and the reality of job market adjustments regarding this opening up, the situation in developing countries in terms of these analyses is hardly known.

Engaged in the process of trade liberalization for over two decades now, through the implementation of structural adjustment programs, adhesion to the WTO and signing of free trade agreements with industrialized countries, some developing countries have had to deal not only with the commercial potential of developed economies, but also with competition in developing markets themselves.

Therefore, the consequences on employment dynamics and the job market seem to be more complex. This is why the question of employment and trade liberalization has been at the center of many debates on development policies in these countries.

These debates take place between the proponents of opening up which, according to them, will lead to the creation of jobs and the improvement of income, and the advocates of a certain level of protectionism, which will allow, at least in the first phases of the development process, for limiting the adverse effects of foreign competition shocks.

Only though a deep analysis of the past years’ experience of the gradual liberalization of trade in several developing countries can we understand the situation.

The research done as part of this project falls in this perspective. The main objective of this project is to evaluate the impact of liberalization policies on labor in developing countries, through comparing the experiences of two southern Mediterranean countries: Morocco and Tunisia.

In fact, these two countries have some similarities and specificities at the same time. In terms of economic policy, both countries have included, since the early eighties, the promotion of exports and the gradual opening up of their economies on trade in their development agenda.

Similarities between the two countries also include factor endowments which, despite the different market sizes, have the same structures.

As to the specificities, each of these two economies has developed, depending on their assets, a specific production structure, although at the level of some foreign markets both countries face competition (mainly in terms of textile and agribusiness).

The study of the impact of trade openness on the labor market was conducted from two complementary perspectives. The first focuses on the adjustments of employment and wages in response, firstly, to the increased of demand for local products through the development of exports and, secondly, to the competition of foreign products in the domestic market.

These adjustments may be approached by considering the tariff and nontariff changes entailed by trade liberalization as part of a general equilibrium modeling. The methodology adopted in this case is based on a general equilibrium modeling distinguishing sectors in terms of the nature and extent of their involvement or not in foreign trade.

The simulations related to the parameters reflecting the degree of openness in the different sectors allow for assessing the impact on labor market balance and its determinants.

The particularity of the general equilibrium approach resides in the fact that it incorporates the dynamics of all sectors and their interactions following a macroeconomic approach. The adjustments that occur as a result of opening up shocks are seen from a global perspective, within the sectors themselves, and in terms of the parameters that determine market behavior.

This macroeconomic approach, which is essential for analyzing the impact of liberalization on the different categories of jobs and the relative wages of the workforce according to the level of qualification, should be supplemented by a microeconomic one. This means the examination of how enterprise players adjust their labor demand and their wage costs to adapt to competition shock in response to trade liberalization.

The development of this approach should therefore be based on the direct observation of these players’ behavior through a series of variables, such as production, added value, exports, employment structure and production costs. The microeconomic behavior towards openness can be in this case approached through econometric modeling built on the basis of data compiled at the enterprise level. The results obtained through this approach, that directly identifies the behavior of firms, will be confronted with those that emerge from the general equilibrium analysis.

The two modeling approaches, whether that of general equilibrium or that which is based on enterprise data, should be preceded by a detailed reading of the data available on market opening in connection with employment and wages at the macroeconomic or firm levels. The objective is to identify the most significant stylized facts on more than two decades of foreign trade reform.

To this end, Morocco has conducted two surveys on the industrial sector (FACS-Morocco study published in 2000 and ICA study published in 2005), in addition to data collected annually by the Ministry of Trade and Industry from the players of the sector who provide relevant data for such an evaluation. Tunisia also has a database for its industry similar to the Moroccan one.

The comparative analysis of data from these various sources aims to highlight the adjustments made in terms of employment and wages in order to cope with changes in the competitive environment both in the internal and external markets. In addition to the importance of the conclusions that can be drawn, this analysis will serve as a basis for the modeling approach to better guide the simulations to be done as part of the general equilibrium study or the estimates of player’s behavior approach.

This study comes in four chapters. The first chapter describes the various stages of trade liberalization initiated in Morocco since the early eighties and which was intensified gradually with adhesion to the WTO and the entry into force of the association agreement with the European Union and later the free-trade agreements with the United States and some Arab countries.

The dynamics of trade liberalization in Morocco have led to a significant change in the level of effective protection whose evolution over the past few years is subject to a fairly detailed analysis at the conclusion of this chapter.

The second chapter is dedicated to a study on labor market transformations over the past two decades. By analyzing the factors involved in the evolution of this market, both in terms of supply and demand, this chapter focuses on the identification of the ongoing restructuring related to the process of trade liberalization which affects the structure of employment by qualification and salary level. The objective of such analysis is to identify the stylized facts that will better orient the investigations to be done according to the two modeling approaches.

The third chapter focuses on the general equilibrium model developed to study the impact of trade liberalization on the labor market. This chapter presents the structure of the model adopted, gives a detailed description of the data used and provides the main results. Finally, the last chapter is devoted to the econometric model developed for the study of labor demand and wage formation.

This model seeks, through econometric estimates of labor demand functions and wage formation functions, to establish possible links between the level of trade liberalization on the one hand, and the level of employment and wages by qualification on the other. The comparison of the results obtained with those of the general equilibrium analysis allows for reaching interesting conclusions about the impact of trade liberalization on employment, based on the experience of a developing country like Morocco. All these elements are included in the conclusion of this document with a comparison to the Tunisian experience in this respect.

The repercussions of the liberalization shock, assessed through both the general equilibrium modeling approach and the econometric approach, seem to be generally positive, with different degrees according to labor categories. For general equilibrium simulations, the positive impact is felt more at the level of non-qualified labor, but less at the level of skilled labor. The econometric approach limited to the industrial sector has reached different results with regard to the impact by type of qualification.

The overall impact of this trade liberalization process on employment is made clear by the several positive estimates made. Such an impact, however, is quite differentiated by the qualification level of the workforce and appears to affect mostly supervisors and skilled workers categories. This result, which differs from that reached by the general equilibrium, seems to be closer to this dynamic.

The liberalization process concerns mainly the manufacturing sector in the current phase. The most significant impact is felt in the main branches of this sector. Econometric estimates that are based on data collected about industrial activities appear to be, in these conditions, most relevant for drawing conclusions and their implications in terms of economic policy.

The opening up dynamics have probably exerted significant pressure on employment, particularly in the sectors that are most exposed to competition. This pressure has resulted, other things being equal, in an increase of labor demand, mainly in terms of skilled labor. This is followed by the strengthening of the position of skilled labor compared to the unskilled one. This effect is also noticeable through the behavior of the average wage in response the opening up shock for each job category.

The results that emerge from analyzing the behavior of labor demand in response to the shock of liberalization in Morocco are almost similar to those in Tunisia. This country, whose production structure is comparable to that of Morocco and which has followed since the beginning of 80s the same path both in terms of economic liberalization and openness on foreign trade, seems to provide the same employment trends against the gradual dismantling of the protection system and the development of trade.

This conclusion is made clearer by the various assessment works undertaken in this respect, whether through the general equilibrium approach or the econometric approach. The impact of trade liberalization on employment in general is clearly positive according to all these works. This impact is however differentiated by skill levels, as in most studies we find more pressure on the skilled labor, which according to some estimates, has led to the widening of the wage gap between skilled and unskilled workers.