# **1 Introduction**

Gender inequality in labor markets is a widely discussed phenomenon, both among researchers and the general public. Even in countries that rank high in gender equality indicators, female workers tend to earn less than males with the same observable characteristics.<sup>1</sup> . This suggests that biases, social norms and/or individual preferences create frictions in the labor market that prevent workers from optimally moving across sectors. If large enough, such frictions can lead to substantial levels of market segmentation – a situation in which male and female workers perform different sets of pre-determined tasks, rather than sorting into tasks in which they are more productive.<sup>2</sup> .

International trade can impact different groups of workers in differential ways. Trade shocks induced by changes in policy or in foreign demand alter domestic relative prices, both in product and factor markets, and will likely impact employment and wages. If the domestic market has a high degree of gender segmentation, it would not be surprising that trade shocks differentially impact males and females.

Through the lens of Becker’s (1971) canonical model of “taste-based discrimination,” bias creates inefficiencies in production since managers might be willing to pay male workers more relative to a female worker of the same productivity This equilibrium can only be sustained with some degree of protection from entry of new competitors. If trade liberalization increases competition in product markets, it should lead to a decrease in gender inequality in the labor market.

The empirical evidence does suggest that, in many instances, trade liberalization decreases gender inequality. But the mechanisms are more complex than what Becker had in mind. First, in many developing countries, trade liberalization induced sectoral shifts towards industries and tasks that are more female-intensive in a gender-segmented labor market. Second, increased foreign competition can temporarily displace male workers, reduce household incomes, and induce females to supply labor outside the household – an added worker effect.

These factors highlight that both the nature of the trade shocks and domestic labor market institutions matter in determining the impact of trade liberalization on gender inequality. This paper sheds light on the relationship between _exports_ and gender-segmented labor markets by studying the effects of increased foreign demand shocks on local labor markets.

In this paper, we make two main contributions to the literature: one theoretical and another empirical. First, we present a general equilibrium model that combines international trade and gender-segmented labor markets. Production is divided between a female-intense sector and a maleintense sector and households optimize their combined consumption and leisure by supplying different quantities of female and male labor, given wages. In this framework, a foreign demand shock can either increase or decrease the equilibrium female-to-male employment ratio. The response depends crucially on (a) the sectoral composition of the demand shock; and (b) the relative market shares of each industry in the destination market.

We then present empirical evidence that is consistent with this theoretical mechanism. We construct a new dataset that combines labor market data and trade data from Tunisia, a developing country with a high degree of gender segmentation in the labor market and where foreign demand shocks were concentrated in male-intensive industries. We then use plausibly exogenous variation in export exposure of different regions in Tunisia to show that the direction of the effect of exports on labor markets is the same as the one predicted by the theoretical model.

Tunisia is a good case study because it has a high level of gender segmentation in labor markets but females are an important part of the labor force, participating at higher rates than other Middle East and Northern Africa (MENA) countries. During the sample period, the female-to-male employment ratio decreases in response to a foreign demand shock. This effect was concentrated par-

> 1For a review of gender imbalances in labor markets of developed countries, see the review in OECD (2012).

> 2In a policy review, Papageorgiou, Ostry, and Espinoza (2018) provide evidence of large gender sorting across different sectors for a large number of countries. In particular, they show the rise of services correlates with a narrowing of the male-to-female labor force participation gaps.

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