Trade liberalisation and firm-level employment a case study of the EU eastern enlargement

This paper analyses employment effects of the Eastern Enlargement of the European Union (EU) in German firms. The literature has so far identified such effects using difference-in-differences estimators treating the EU Eastern Enlargement as a single event or using border regions as treatment intensity indicators. This paper re-evaluates the existing results using more recent and detailed data on actual tariff reductions. We recall that the EU Eastern Enlargement is a process of integration and continuous trade liberalization rather than a single event. We exploit that process and use actual variations in tariffs to identify causal effects of trade liberalisation on employment in German firms affected by these tariff cuts. There are negligible effects of tariff reductions from the EU Eastern Enlargement on overall employment in German firms. We find, a positive correlation between employment and tariff reductions, which is, however not causal, and potentially due to selection, as we also find higher employment growth in exporting firms.