For domestic companies to reduce production, they need to reduce variable production costs, which will include the dismissal of workers. This means that adjusting to the new balance of free trade will cause unemployment and its associated costs. Exports can increase incomes, for example, by expanding demand, achieving higher yields and bringing production closer to full capacity, affecting employment levels. Imports can increase inflows of knowledge and other inputs, with the potential to improve the labor market.
In short, free trade will not cause unemployment, but rather a change in demand patterns within economies. This will cause a change in employment patterns and there may be temporary unemployment as long as workers change jobs. Those who argue that free trade will cause long-term unemployment are suggesting that the pattern of demand for products will not change; this is not usually the case. The duration of unemployment will depend on the mobility of workers, which depends on government policies and spending.
With free trade, there is no protection for local industries, as they are threatened by foreign competition. UNCTAD maintains a long-standing collaboration with the ILO in the area of trade and employment, including publications and joint meetings. The UNCTAD multi-year expert meeting on trade, services and development includes regular contributions to the debate on services, trade and employment, and on how services and regulatory frameworks are needed to harness the potential of trade to generate and improve employment. However, the trade agreement also led to the subcontracting of those same agricultural and manufacturing jobs to Mexico.
Identify coherent policy approaches that allow the potential of trade to generate jobs and support better conditions in the labor market. Cost differences represent a large part of international trade; most countries could produce any good (excluding certain goods, such as raw materials, since there is an uneven distribution of resources), but this would have a much higher cost of production or with possible delays in deadlines. Therefore, if there is no international trade, relative prices will vary in different countries due to different productive efficiencies. Some of the products include the global study on the impact of trade and trade agreements on employment in developing countries and the national case studies on Ecuador, Senegal and South Africa.
Improve the understanding of the links between trade, job creation and the improvement of labor market conditions. The links between trade and employment are also supported by UNCTAD's extensive work on trade negotiations and also on the Doha Development Agenda and on preferential treatment. Focusing on SPRs, on infrastructure services as facilitators of trade and competitiveness in all economic sectors, is especially important to amplify the effects on employment. If international trade were to open up now, consumers will see that relative prices differ in different countries and will buy the good or service at the lowest possible price.
The objective of a free trade agreement is to make it easier for foreign countries to compete with local production, making everything cheaper according to the principles of the free market (if there are many suppliers of a good, producers are encouraged to sell it at a competitive level, which reduces the price). UNCTAD is participating in this initiative, which seeks to better understand how trade interacts with employment, promote debate on these issues and develop policy-relevant conclusions. .
