Labor Market Implications of Taiwan’s Accession to the WTO: A Dynamic Quantitative Analysis

This paper studies the effects of Taiwan’s accession to the WTO in 2002 on the labor market dynamics in Taiwan during 1995–2020. Our dynamic quantitative framework builds on that of Caliendo, Dvorkin and Parro (2019) but allows for differently skilled labor inputs (low, middle, high) and sector-skill dynamic choice by workers. We map the model to the labor-market transition data in Taiwan, the country-sectorspecific skill shares in production, and the bilateral trade flows and import tariffs, of 61 economies and 22 sectors for the period 1995–2007. We study the counterfactual dynamics if the bilateral tariffs related to Taiwan’s imports and exports are rolled back to their 1995 levels, and calculate the cumulative effects on the employment shares and welfare of workers by sector and skill level. We find that the tariff reductions during this period help explain the phenomenal expansion of certain star sectors in Taiwan and the growing share of high-skilled workers in Taiwan’s labor composition. Bilateral tariff concessions between China and Taiwan account for the bulk of the effects of Taiwan’s WTO accession, illustrating the importance of China to Taiwan in the latter’s trade structure. The skill-upgrade mechanism is critical in explaining the large employment effects of its WTO accession.