Who Gains from a US-EU Free Trade Agreement? Relative Wages, Employment, and Welfare in General Equilibrium

This paper investigates the labor-market and welfare implications of the proposed Transatlantic Trade and Investment Partnership (TTIP) between the United States (US) and the European Union (EU) using a multi-country, multi-sector general equilibrium framework with endogenous labor mobility across sectors. Trade-cost changes associated with existing regional trade agreements (RTAs) and the hypothetical TTIP are estimated using a gravity model and subsequently incorporated into a general equilibrium framework solved in changes following the exact hat algebra approach. The analysis quantifies the effects of TTIP on relative wages, sectoral employment, consumer prices, and worker welfare across countries. The results indicate that TTIP would generate substantial gains for EU member states, particularly smaller and less-developed economies, through higher relative wages, lower consumer prices, and improved worker welfare. In contrast, the effects on the US are modest, with slight declines in relative wages but limited changes in overall welfare. Most non-member countries experience welfare losses as trade and production are diverted toward the integrated transatlantic market. The findings suggest that while TTIP would strengthen economic integration and improve labor-market outcomes within the EU, its benefits would be unevenly distributed across countries, creating winners and losers through trade diversion and changes in international competitiveness.