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

Chapter 2: New evidence on trade and employment: An overview
association between trade liberalization and labour market outcomes at the industry
level. This is an indication that, within the industrial sector, labour rigidities are not
too strong and, thus, labour can relocate within manufacturing relatively easily.
Ebenstein et al. (2009) go on to show that labour is not as mobile across occupations.
Their results suggest, at least for the United States, that a 1 percentage point increase
in occupation-specific import competition is associated with a 0.25 percentage point
decline in real wages. While some occupations have experienced no increase in
import competition (such as teachers), import competition in some occupations
(such as shoe manufacturing) has increased by as much as 40 percentage points. The
downward pressure on wages due to import competition has been commonly overlooked
in the literature because it operates between and not within industries.
The magnitudes of the effects appear to be important. The authors report that
total employment in manufacturing fell from 22 million to 17 million, with the
steepest declines in the early 1980s. Total employment for the least-skilled workers
(with a high-school diploma or less), declined over the entire period, while employment
for workers with at least a college degree increased in all but the last three
years of the sample. Additionally, real hourly wages fell for workers with a highschool
education or less, while manufacturing workers with at least a college degree
realized the largest wage gains. In terms of offshoring trends, offshore employment
as a percentage of total employment of US multinational firms increased from 28
per cent in 1982 to 36 per cent in 2002; these increases occurred concurrent to a
reduction in the US workforce for these firms, from 12 million workers in 1982 to
7 million in 2002. The authors find significant relocation of workers across industries
due to import competition and smaller responses of employment to offshoring.
Finally, the authors find that a 1 percentage point increase in import penetration is
associated with a 0.6 percentage point decrease in manufacturing employment in
the United States; they observe an increase of nearly 8 percentage point in import
penetration for this country, which would explain almost 5 per cent of the reduction
of employment in manufacturing. They also note that this effect has been felt more
strongly by workers with a high-school education or less.
2.3.2 Labour has lost bargaining power relative to capital
Numerous reports in the popular press describe the decline in labour’s share of
income as an outcome of a struggle between capital and labour, with owners of capital
winning at the expense of labour. These accounts typically present owners of capital
as having greater bargaining power compared to labour, ostensibly because capital is
footloose and can quickly relocate to wherever it can find the highest returns. For
example, The New York Times quotes Stephen Roach of Morgan Stanley, who points
out that “… the share of national income going to the owners of capital through
corporate profits is surging. The share going to labour compensation is falling. This
is not the way a democracy is supposed to work ...”. Rodrik (1997) describes a similar
type of bargaining game between capital and labour. Some observers have even suggested
that this increase in capital mobility has made workers in both receiving and
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