|Volume 1, Issue 1, 2007|
|What Can Industry Trade Orientation Tell Us About Trade-related Employment Dynamics?|
White, Franklin and Marshall College
This paper explores whether imports and exports affect industry employment differently based on the industry’s trade orientation. Effects of trade are examined for both production and non-production employment using data for 384 6-digit manufacturing industries, classified by the North American Industrial Classification System (NAICS), and 116 trading partners that span the years 1972 to 2001. Additionally, the paper considers potential employment effects stemming from shifts in import sources from high- to low-income nations. The findings confirm theory and provide a more detailed portrait of trade-related employment dynamics. As the United States further liberalizes trade, net job loss may be expected in more labor-intensive industries that run trade deficits and possess lower than average levels of technology. Export-oriented industries characterized by more capital-intensive production and possession of above-average levels of technology are expected to see net job creation.
Between 1972 and 2001, US manufacturing employment as a share of total employment decreased from 24.3 to 14.7 percent while trade as a share of Gross Domestic Product (GDP) increased from 11.3 to 18.5 percent [US Census, 2002; 1976]. Protectionists cite such statistics to argue that imports lead to domestic job loss and to justify the maintenance or expansion of trade barriers. Supporters of free trade claim that increasing exports creates jobs and that a declining manufacturing sector is understandable as US output has shifted toward the provision of services. The empirical literature finds both sides of the debate to be correct: exports have created jobs, while imports have destroyed jobs. We extend the literature by examining trade-related employment dynamics, placing particular focus on employment effects across industries that have been classified according to relative export and import intensity.
Theory predicts that trade with labor-abundant nations reallocates US production from labor-intensive to capital-intensive goods. Prior research has found the employment effects of imports to be minor when compared to domestic demand shifts and business cycle fluctuations [Sachs and Shatz, 1994; Revenga, 1992]. However, a strong positive relationship between imports and job loss is found for industries exposed to high levels of import competition [Kletzer, 2000 and 1998]. Additionally, Bernard and Jensen  report higher employment growth at exporting firms as compared to non-exporters. Kletzer , Blanchflower , Belman and Lee , Baldwin  and Dickens  provide excellent surveys of the associated literature.
consider employment effects for both production and non-production
workers. Additionally, we examine potential employment effects stemming
from shifts in import sources from high- to low-income nations. The
underlying rationale is that lower labor costs in low-income countries
may confer an advantage to foreign producers. To complete the analysis,
we employ data for 384 6-digit industries, classified using the North
American Industrial Classification System (NAICS), and 116 trading
partners that span the years 1972 to 2001. Following Kletzer , we
use a modified Grubel-Lloyd Index  to classify industries as
unbalanced importers, balanced importers, balanced exports and
represents industry employment,
is the elasticity of labor demand and Wjt is the industry wage rate. Zjt is a vector of factors that may
exogenously shift product demand and, thus, may shift the labor demand
curve, while Vjt is a vector of industry-specific variables. d is the
difference operator, ln denotes the natural logarithm, and j and t are
industry and time subscripts, respectively. Labor supply is
expressed by equation (2), where l is the elasticity of labor supply and
Rjt is a vector of factors underlying potential labor supply shifts.
equilibrium, labor market clearing dictates that equations (1) and (2)
are equal. Solving for dlnWjt yields
Substitution of equation (3) into equation (2) and solving for the
change in industry employment results in equation (4).
Qjt is industry output, Pjt is the
industry price level, and
is the price elasticity of product demand. Assuming Pjt
depends solely on production costs and, for simplicity, that labor is
the only factor input, Pjt is determined solely by
wages. Equation (6) illustrates.
f represents labor’s share of total costs and ejt is a normally distributed, stochastic error term with an expected mean of zero and constant variance. Setting dlnRjt and dlnVjt equal to zero, for now, permits equations (3) and (4) to be written as follows.
equations illustrate that wages and employment change in response to
exogenous shifts in product demand. Substituting equation (6) into (5)
and assuming that
is equal to 0 yields
substituting equation (6) into equation (10), again assuming that
is equal to 0, and solving the resulting equation for dlnZjt
yields equation (11).
Substitution of equation (7) into equation (11) for dlnWjt
results in equation (12).
write the change in employment as
remaining coefficients provide additional interesting results. While
changes in domestic demand significantly affect employment in all
industry classifications, unbalanced exporters’ employment appears less
affected as compared to the other classifications. More specifically, a
1 percent decline in domestic demand yields 0.171 and 0.14 percent
decreases in unbalanced exporters’ production and non-production
employment, respectively. A like decline in domestic demand reduces
production and non-production employment by 0.5 to 0.63 percent and 0.49
to 0.58 percent, respectively, in the remaining classifications.
Non-production employment appears unaffected by business cycle
fluctuations; however, production employment is found to be pro-cyclical
across all industry classifications.
all industries we estimate that 965,139 production jobs and 452,310
non-production jobs were lost due to import competition between 1972 and
2001. These estimated losses were partially offset by gains,
attributable to rising exports, of 470,472 production jobs and 130,428
non-production jobs. Thus, the estimated net effect of trade on
manufacturing employment is a loss of 816,549 jobs over the period.
While unbalanced exporting industries appear to have gained, on net,
297,212 jobs due to trade, all other industry classifications are
estimated to have realized net trade-related job losses. Given the
relationships between imports and exports and employment, it is not
surprising that estimated trade-related employment losses are greatest
for unbalanced importing industries (a loss of 748,637 jobs) and
smallest for balanced exporters (a loss of 146,005 jobs).
Countries with average GDP per capita less than 10 percent of US level: Algeriaa, Angolaa, Bangladesha, Belize, Benin, Boliviaa, Burkina Fasoa, Burundi, Cameroona, Central African Republica, Chada, Chinaa, Colombiaa, Congoa, Cote d'Ivoire, Djibouti, Dominican Republic, Ecuador, Egypta, El Salvadora, Fiji, Gambiaa, Ghana, Guatemalaa, Guinea-Bissaua, Guyana, Haiti, Hondurasa, Indiaa, Indonesiaa, Iran, Jamaica, Jordana, Kenya, Kiribatia, Liberia, Madagascara, Malawia, Malia, Mauritania, Moroccoa, Nepala, Nicaragua, Niger, Nigeriaa, Pakistana, Papua New Guineaa, Paraguay, Philippinesa, Romania, Rwanda, Senegala, Sierra Leone, Sri Lankaa, Sudan, Suriname, Syriaa, Thailanda, Togoa, Tunisia, Turkeya, Ugandaa, Zambia, Zimbabwe.
Countries with average GDP per capita greater than 10 percent of US level: Argentina, Australia, Austria, Bahamas, Barbados, Belgium, Brazila, Canada, Chilea, Costa Ricaa, Cyprusa, Czech Republic, Denmark, Finland, France, Gabon, Germany, Greece, Hong Kong, Hungarya, Iceland, Irelanda, Israela, Italy, Japan, Korea (Republic of)a, Kuwaita, Malaysiaa, Maltaa, Mauritiusa, Mexicoa, Netherlands, New Caledonia, New Zealand, Norway, Omana, Panama, Peru, Poland, Portugal, Saudi Arabiaa, Seychellesa, Singaporea, South Africaa, Spain, Sweden, Switzerland, Trinidad and Tobago, United Arab Emiratesa, United Kingdom, Uruguaya, Venezuela.
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