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

Trade and Employment: From Myths to Facts
The authors conclude that their results support a positive view of the role of foreign
investment on labour market outcomes in Brazil.
Harrison and Rodríguez-Clare (2009) conclude that there is no evidence to
support the view that foreign firms unfairly exploit foreign workers by paying them
below what their domestic counterparts would pay. Further evidence supporting this
view comes from Harrison and Scorse (2010) who find evidence that foreign firms
are more susceptible to pressure from labour advocacy groups, leading them to
exhibit greater compliance with minimum wages and labour standards. They find
that foreign firms in Indonesia were much more likely than domestic enterprises to
raise wages and adhere to minimum wage requirements as a result of anti-sweatshop
campaigns. They also find that the employment costs of anti-sweatshop campaigns
were minimal, as garment and footwear subcontractors were able to reduce profits
to pay the additional wage costs without reducing the number of workers.
2.3.5 Trade in tasks has ambiguous implications for employment
Trade in tasks is commonly referred to as offshoring. The term “offshoring”, as used
by Grossman and Rossi-Hansberg (2008), encompasses two different business configurations:
the physical relocation of activities overseas through the establishment
of overseas affiliates and offshore outsourcing. The first type of offshoring maintains
the offshore activity within the boundaries of the firm while offshore outsourcing
refers to the sourcing of intermediate inputs from overseas suppliers. Both types of
offshoring are common. In what follows, we use the term “offshoring” to refer to
the type of activity that maintains the offshore activity within the boundaries of the
firm and the term “offshore outsourcing” to refer the sourcing of intermediate inputs
from foreign suppliers.
Most of the evidence concerning the impact of offshoring on developing
country labour markets is centred on estimating the impact of developed countries’
FDI on developing country labour markets. This work misses an important part of
the story: trade in intermediate inputs or offshore outsourcing. Offshore outsourcing
has become increasingly important for both developing and developed countries.
The impact of offshore outsourcing on employment and wages has been especially
difficult to get a handle on for a number of reasons. Most important is the fact that
many statistical agencies do not differentiate between trade in final goods and trade
in intermediate inputs. For example, the US Bureau of Economic Analysis only collects
data on imports by US-based MNCs, making no distinction between final
goods imports and imported intermediate inputs.
Some studies have managed to get around these data limitations. For example,
Goldberg et al. (2010) find that trade reform might have benefitted Indian firms by
providing them access to a less expensive array of imported intermediate inputs.
Their goal is to link the increased access to imported intermediate goods to dynamic
gains from trade. This is innovative and important work but the implications for
employment are unclear. Using cross-country data, Estevadeordal and Taylor (2008)
find that liberalization of tariffs on capital and intermediate goods has a positive
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