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

Trade and Employment: From Myths to Facts
The input-output approach is still widely used. Revenga (1992), for example,
looked at 38 US manufacturing industries for 1977-87 and found a fall in price of
1 per cent caused only a small loss in employment, between 0.24 and 0.39 per cent.
She found almost no impact on nominal wages, and concluded that labour mobility
prevented a significant decline in wages due to import penetration, despite job loss.
This implies that the direct and indirect factor content of industries that contract
is approximately the same as that of expanding industries, at least for the US data.
Box 3.5 illustrates using a hypothetical example of how trade-induced employment
changes can be calculated on the basis of the input-output approach.
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Box 3-5: Using input-output methods to compute trade-induced
changes in employment: a hypothetical example
The effect of trade on employment can be studied with the help of an input-output
matrix, which shows the quantity of intermediate goods and services (both imported
and domestically produced) required for the production of one unit of output. This
is known as the Leontief matrix and is denoted by A:
Agriculture Industry Services
Agriculture 0.1 0.1 0.15
Industry 0.2 0.25 0.12
Services 0.1 0.2 0.24
Source : Author’s calculations.
If X is a column vector of gross outputs of the three sectors shown, then total intermediate
demand is given by the vector product AX. Labour demand per unit of
output (L) is written as a row vector and, for this example, is
Agriculture Industry Services
Labour demand 0.4 0.2 0.3
Source : Author’s calculations.
Final demand is made up of three column vectors, domestic demand, Y d , exports,
E, and imports, M
Y d Exports Imports
Agriculture 40 30 10
Industry 45 5 15
Services 60 10 20
Source : Author’s calculations.