Trade Integration with Europe and Labor Reallocation in the Southern Mediterranean Countries : The Case of Egypt

This paper looks at the implications of the Euro-Mediterranean partnership agreement on labor and wages in Egypt, using a dynamic CGE model, which takes into account the labor market segmentation. Our results suggest that trade liberalization bears the risk of promoting the use of capital-intensive technology, thus reducing the employment content of growth. Employment policies that increase the mobility between the segments of the labor market and the wage flexibility could enhance the job creation effect induced by the trade liberalization. Employment and trade policies are also complementary in political terms, by alleviating the losses borne by the insiders following the entry of new workers into the labor market