SHARING THE COSTS - THE IMPACT OF TRADE REFORM ON CAPITAL AND LABOR IN MOROCCO

We examine the impact of recent trade reforms. Although employment in the average private sector manufacturing firm was unaffected, there we re significant employment losses to exporters and highly affected firm s. Parastatals increased employment by hiring low-paid temporary worke rs. Many firms did not adjust wages or employment. We examine two poss ible explanations. First, barriers to labor market mobility could have impeded adjustment. Second, we develop a model of labor demand which allows for imperfect competition and endogenous technological change. Our results suggest that although labor markets were flexible, many fi rms cut profit margins and raised productivity rather than reducing em ployment.