Information about the organization
THE 10 MISUNDERSTANDINGS: 6. wrecks jobs?
The WTO does NOT destroy jobs or widen the gap between rich and poor

The accusation is inaccurate and simplistic. Trade can be a powerful force for creating jobs and reducing poverty. Often it does just that. Sometimes adjustments are necessary to deal with job losses, and here the picture is complicated. In any case, the alternative of protectionism is not the solution. Take a closer look at the details.

1. WTO dictates?
Blindly for trade?
Ignores development?
6. Wrecks jobs?
7. Small left out?
Tool of lobbies?
Weak forced to join?

See also:
The WTO in Brief
10 benefits
Understanding the WTO

Trade has the power to create jobsThe relationship between trade and employment is complex. So is the relationship between trade and equality.

Freer-flowing and more stable trade boosts economic growth. It has the potential to create jobs, it can help to reduce poverty, and frequently it does both.

The biggest beneficiary is the country that lowers its own trade barriers. The countries exporting to it also gain, but not as much. In many cases, workers in export sectors enjoy higher pay and greater job security.

However, producers and their workers who were previously protected clearly face new competition when trade barriers are lowered. Some survive by becoming more competitive. Others don’t. Some adapt quickly (for example by finding new employment), others take longer.

In particular, some countries are better at making the adjustments than others. This is partly because they have more effective adjustment policies. Those without effective policies are missing an opportunity because the boost that trade gives to the economy creates the resources that help adjustments to be made more easily.

The WTO tackles these problems in a number of ways. In the WTO, liberalization is gradual, allowing countries time to make the necessary adjustments. Provisions in the agreements also allow countries to take contingency actions against imports that are particularly damaging, but under strict disciplines.

At the same time, liberalization under the WTO is the result of negotiations. When countries feel the necessary adjustments cannot be made, they can and do resist demands to open the relevant sections of their markets.

There are also many other factors outside the WTO’s responsibility that are behind recent changes in wage levels.

Why for example is there a widening gap in developed countries between the pay of skilled and unskilled workers? According to the OECD, imports from low-wage countries account for only 10–20% of wage changes in developed countries. Much of the rest is attributable to “skill-based technological change”. In other words, developed economies are naturally adopting more technologies that require labour with higher levels of skill.

El proteccionismo no es la respuesta:  obstaculiza el crecimiento y el desarrolloThe alternative to trade — protection — is expensive because it raises costs and encourages inefficiency. According to another OECD calculation, imposing a 30% duty on imports from developing countries would actually reduce US unskilled wages by 1% and skilled wages by 5%. Part of the damage that can be caused by protectionism is lower wages in the protectionist country.

At the same time, the focus on goods imports distorts the picture. In developed countries, 70% of economic activity is in services, where the effect of foreign competition on jobs is different — if a foreign telecommunications company sets up business in a country it may employ local people, for example.

Finally, while about 1.15 billion people are still in poverty, research, such as by the World Bank, has shown that trade liberalization since World War II has contributed to lifting billions of people out of poverty. The research has also shown that it is untrue to say that liberalization has increased inequality.

Previous    10 Misunderstandings menu   Next >