Does economic globalization affect the level and volatility of labor demand by skill? New insights from the Tunisian manufacturing industries

•Exports and imports exert positive impacts only on semi-skilled and skilled labor demand. FDI flows boost the demand of unskilled and semi-skilled workers.•Exports to the European Union increase the demand for semi-skilled and skilled labor.•Imports from the rest of the world enhance the demand for semi-skilled and skilled labor.•Exports and imports are responsible for the rise of employment volatility associated with skilled labor.•There is a weak evidence of increased employment volatility as a result of FDI flows.

The central aim of this paper is to assess the effects of economic globalization on the level and volatility of labor demand for different skill groups in Tunisia. Using a panel dataset covering six manufacturing industries between 1983 and 2009, three main findings are reported. First, exports and imports exert a positive impact only on the semi-skilled and skilled labor demand while foreign direct investment flows increase the demand for semi-skilled and unskilled workers. Second, the regional analysis suggests that exports to the European Union boost the demand for the semi-skilled and skilled labor. Imports from the rest of the world exert similar effects on the demand for these two categories of workers. It emerges also that imports from the European Union lead to a higher demand for skilled labor, which gives support to the validity of the skill-enhancing trade hypothesis in Tunisian industries. Finally, our findings suggest that both exports and imports rise the employment volatility associated with skilled workers. On the other hand, there is a weak evidence of increased employment volatility as a result of foreign direct investment flows.