Trade Liberalization And Employment Effects In Ukraine

The flexibility of labour markets is an important feature of well-functioning market economies. Davis and Haltiwanger (1999, 1992) and Baldwin, Dunne and Haltiwanger (1998) report that in the U.S. and in Canada roughly one in every ten jobs is created and one in every ten jobs is destroyed each year. Flexibility of the labour market is important because it permits the rapid reallocation of resources to the most efficient uses and thus it may be vital for economic growth. Labour reallocation is to a large extent driven by job creation and job destruction. Businesses react continuously to shocks by changing output and input levels at a high pace leading to substantial destruction and creation of jobs at high frequencies. Job creation and job destruction are thus intimately linked to productivity growth. Firms (sectors) that engage in restructuring destroy low productivity jobs and create high productivity ones, leading to large job turnover, an increase in labour productivity and better general performance.