case of low- and middle-income countries –increased informality. Imperfect labor mobility is prevalent due to frictions that arise from various sources, including housing and land use policies.

Traditionally, trade economists have focused on the compensation principle—the idea that the gains from trade are larger than the losses—to argue in favor of some sort of economic transfer in favor of those who lose. But practice has typically lagged behind. The US is one of relatively few economies that has a dedicated Trade Adjustment Assistance policy, which provides special allowances to those negatively affected by trade. But as the literature on the China trade shock suggests, it has proved inadequate to recent challenges. Indeed, a formal evaluation of the program found that while it was effective in some dimensions, participants still generally suffered some negative effects years after the change in trade policy (SPR and Mathematica, 2012).

More broadly, the fact that some workers lose jobs or wages due to changes in trade costs reinforces the need for a social safety net (see e.g., World Bank, 2009a, for an overview focusing on low and middle-income countries). The form that such a set of policies takes naturally varies across countries. But the general idea is to ensure that public funds supply some level of resources to those unable to find work, including when the reason is related to displacement due to increased trade integration. Direct payments are common in high income countries, while India, for example, relies more heavily on guaranteed work schemes in rural areas. Whatever the mechanism, the objective in relation to trade is the same: using the fiscal system to move economic resources from those who gain from trade to those who lose. Of course, in low and middle-income countries where fiscal capacity is greatly constrained, it may be very challenging to develop such systems, with the result that people rely more on informal networks or family relationships as a safety net.

Social institutions can play an important role in determining which social groups bear the brunt of the losses associated with increased trade integration. From an inclusion standpoint, it is important to ensure that laws and regulations favor the employment of historically marginalized groups, including women and ethnic minorities (e.g., OECD, 2021). Beyond legal mechanisms, of course, social practices loom large in decisions to exit the labor market, or to seek employment in the informal sector. Changing attitudes requires a long-term approach, and economic measures are only part of the equation. But in the short term, active enforcement of rules prohibiting discrimination in employment can help ensure more equitable sharing of the burdens associated with the losses from trade.

A final aspect of this side of the problem is that trade can put downward pressure on wages and working conditions more broadly in sectors and locations that experience intensified import competition. While labor market rules and institutions differ substantially across countries, it is important to ensure that pressure is kept within socially acceptable boundaries, through the enforcement of social standards such as minimum wages and regulations governing working hours, safety, and other employment conditions. For countries with well-established systems, the emphasis is more on enforcement of existing rules. But for countries with only basic systems, or those where conflicting practices are not always detected and sanctioned, the emphasis needs to be on developing core labor protections as embodied in the ILO’s Fundamental Conventions (see Brown, 2000, for an overview of the issues).

Education and retraining are economically and socially good in their own right. Education shapes the supply of skills and therefore comparative advantage. Countries that are relatively more endowed with human capital have a comparative advantage in knowledge-intensive sectors, and thus show higher backward and forward GVC participation (Fernandes et al. 2022). But education spending may also act as a deterrent for inward migration. Evidence for Mexico suggests that export expansion over the period 2004-14 led to lower inward migration in regions with higher spending on education. It may 12