Trade Liberalization and Working Conditions

Abstract

We study how trade liberalization affects working conditions beyond wages. Using EU enlargement as a natural experiment, we construct region-specific exposure to exogenous tariff changes and link these shocks to matched data on 4.3 million workers in Eastern Europe. We show that export liberalization leads to a permanent increase in temporary employment and nonstandard work schedules, rather than purely cyclical adjustment. Workers in high-exposure regions are 6.7 percentage points more likely to hold temporary contracts than those in low-exposure regions, with effects persisting for more than a decade after integration. To rationalize these findings, we develop a model in which trade liberalization raises steady-state revenue volatility by increasing firms’ exposure to foreign demand shocks. This induces a permanent shift in firms’ optimal employment composition toward temporary workers, even in the long run once adjustment is complete. By contrast, import liberalization primarily reduces wages and has limited effects on employment composition. Overall, our results show that trade liberalization alters not only the level but also the fundamental structure of employment, with lasting implications for job quality. Joint paper with Bastien Alvarez and Gianluca Orefice.