Impact of Trade Reforms in Tunisia on the Elasticity of Labor Demand

The impact of trade reforms on the labor market may transit through many channels. One of these is the effect on labor demand elasticity emphasized by Rodrik (1997). No consensus has been established yet in the empirical literature regarding this relationship. This paper attempts to extend the work of Hasan et al. (2003) by disaggregating labor into skilled and unskilled categories in order to analyze the effects of trade policies on labor demand elasticities by skill in Tunisia. We use dynamic panel techniques to estimate a model of employment determination which incorporates the effects of trade and takes into account the delay of labor adjustment. Our database covers 529 Tunisian firms from 6 manufacturing sectors over the period 1997-2002. Results suggest that a decrease in trade protection in Tunisia increases the elasticity of unskilled labor demand while it contributes to reduce the elasticity of skilled labor demand.