Demographics and labour markets: implications for mode 4 trade

Abstract

This chapter highlights the close links between demography, trade and migration and the consequent implications for trade in services through the temporary cross-border movement of labor. In the wake of current and prospective demographic imbalances between nations, mode 4 trade in services can be a useful avenue for addressing labor market shortages and skills deficits, with mutual benefit to both sending and receiving nations. However, the effective realization of these opportunities is constrained by barriers to mode 4 in importing countries and by limitations in the supply capacity of sending countries. This chapter argues that host countries need to take steps to ease border and ‘behind-the-border’ measures that currently impede the entry and stay of foreign workers while source countries also need to pay greater attention to the supply side challenges affecting mode 4 exports, through education and training policies, labor market policies and supporting institutional frameworks. The discussion stresses the fact that without greater attention to capacity and quality issues in sending countries, the latter will not be able to leverage their demographic surpluses and will also face tradeoffs between exporting services through mode 4 and meeting their domestic labor market needs. Moreover, their demographic dividends then risk becoming a demographic liability. In addition to unilateral measures, both sending and receiving countries also need to actively pursue bilateral labor agreements as well as broad-based economic cooperation and partnership agreements that cover services, investment and labor mobility, so as to benefit from their demographic complementarities.