Trade expansion is widely believed to entail comparatively low labour-market adjustment costs if it takes the form of intra industry trade (IIT). We examine this hypothesis using a panel of trade, production and employment data for Ireland. The share of intra industry job turnover in an industry’s total job turnover is used as a proxy for the degree of low-cost labour-market adjustment. IIT is calculated applying the conventional static index as well as alternative measures of marginal IIT. Ceteris paribus, we find no relationship between the static IIT index and our measure of labour adjustment. However, marginal IIT has a small positive effect on the reallocation of labour within an industry. These results are consistent with the “smooth adjustment hypothesis” in the sense of marginal IIT, provided that labour reallocation is less costly within than between industries.
with Anthony Murphy and Eric Strobl, 2004. See paper