Trade and Employment From Myths to Facts - International Labour ...

Trade and Employment: From Myths to Facts
We hope that our discussion of these figures will help stimulate additional research
at the country level designed to explain some of these puzzles.
Finally, as noted by Harrison and McMillan (2009) the revealed declines in
real wages in developing countries partially help to explain the trends in offshoring.
For US firms that invest offshore and for those that import intermediate inputs
from abroad, it is primarily the US$ value of these wages that are important. Figure
2.5, borrowed from Ebenstein et al. (2009), reveals that import penetration into the
United States from developing countries jumped from only 1 per cent in 1980 to
a little over 15 per cent in 2002. Trends presented in Grossman and Rossi-Hansberg
(2008) reveal the high degree of correlation between imports and imported intermediate
inputs, or what is commonly referred to as offshore outsourcing. Figure 2.6
from Ebenstein et al. (2009) shows that practically all of the increase in offshore
employment between 1980 and 2005 occurred in low-income (low-wage) countries.
However, they also note that almost all of the increase in employment occurred in
two countries: Mexico and China.
Figure 2.6: Offshoring by US-based multinationals
Parent Employment (’ooo)
2.3 TRADE AND EMPLOYMENT: FIVE LESSONS FROM RECENT
EMPIRICAL WORK
In this section, we review some of the most recent and innovative country studies
that examine the relationship between trade and employment. To make this section
more reader friendly, we have grouped the evidence by the broad sub-themes men-
36
12’000
11’000
10’000
9’000
8’000
7’000
900
1980 1985 1990 1995 2000 2005
Source: Ebenstein et al. (2009).
Year
U.S. Employment Low Income Country Employment High Country Employment
Note: Authors’ calculations based on the most comprehensive available data and based on firm-level surveys on US direct investment
abroad, collected each year by the Bureau of Economic Analysis (BEA) of the US Department of Commerce. Using these data, we
compute the number of employees hired abroad by country by year and the aggregate of these numbers by low- (high-) income countries
according to World Bank classifications.
2’400
1’900
1’400
Affiliate Employment (’ooo)