Imports and the demand for labour in Australia

The role of imports in explaining Australian labour market outcomes is an issue that has attracted considerable interest in the literature in recent decades. Specifically, researchers have investigated whether trade, particularly imports, have caused increases in the demand gap between skilled and unskilled workers in Australia. However, most studies examining this issue in Australia focus primarily on the traditional displacement effects of imports on domestic factors of production. These are captured by models derived from the standard trade theory such as the Heckscher-Oh1 in-Samuelson and Ricardian type of models. As such, the role of trade in intermediate goods and the domestic factor-using downstream processes of imports that have the potential to stimulate the demand for labour have been overlooked. These effects have been found to be significant in the literature (Feenstra and Hanson, 1999, Tombazos 1999a, 1999b, 2003, 2007). Furthermore, studies in Australia have also failed to account for the effects of economy-wide capital accumulation on labour demand. At least in the case ofthe U.S. (Tombazos 2003, Harrigan 2000), these have also been found to be significant and should therefore be investigated in conjunction with trade.