Lecture 1: Trade and Labour
H. Vandenbussche
Research questions
Link between imports from low-wage countries and firm-level employment growth?
Link between imports from low-wage countries and firm-level skill-upgrading?
Theory: « Old » Trade Theory
Explains why countries trade in DIFFERENT products
EU CHINA
MACHINES
TEXTILES
3. « Old » Trade Theory
L: Labour
K:Capital
EU
CHINA
Machines
Textiles
« New » Trade Theory
Explains why countries can trade in SAME products but with DIFFERENT factor intensities
EU CHINA
TEXILES
TEXTILES
« New » Trade theory
L:Labour
K: Capital
EU
CHINA
High quality Textiles
Low quality Textiles
Hypothesis
Based on endowment theory we expect firms’ employment growth to decrease with exposure to low wage import competition
Firm capital and skill intensity increase employment growth more in industries with low wage import competition
Bernard et al. for US plantsShare of Imports from Low wage (%)
Overall Import penetration (%) Employment change
1977 1992 1977 1992 1977-1997
Food 9 9 12 13 -3
Tobacco 6 15 6 3 -45
Textile 11 19 7 11 -38
Apparel 8 32 13 32 -40
Lumber 4 9 18 15 8
Furniture 1 5 3 11 6
Paper 0 0 29 24 1
Printing 0 3 3 4 42
Chemicals 1 2 17 17 3
Petroleum 0 3 10 9 -28
Rubber and Plastics 0 13 10 33 49
Leather 4 20 21 54 -69
Stone&Ceramic 1 4 12 20 -14
Primary metal 1 4 11 18 -39
Fabricated metal 1 4 8 13 -4
Industrial Machinery 0 1 11 31 14
Electronic 1 5 22 38 10
Transport 0 0 17 27 4
Instruments 0 3 12 22 10
Miscellaneous 6 19 23 58 -9
Average 2 6 15 28 -2
OLS IV
ΔEmpl it:t+5 ΔEmpl it:t+5
Log(empl it) -0.158*** -0.179***
Age it -0.001*** -0.004***
Log(TFP it) 0.023*** 0.026***
Log (K/Prod workers it) 0.008*** 0.007***
Non-prod/Prod wage bills -0.000001 0.000001
Other penetration -0.037*** -0.037***
Low wage penetration -0.840*** -0.515***
X log(TFP it) 0.104 -0.289*
X log(K/P it) 0.181*** 0.034
X N/P it -0.023 -0.150
Firm fixed eff Yes Yes
Year fixed eff Yes Yes
obs 323,569 246,855
R2 0.76 0.43
IV instrument Low wage penetration and Other penetration with tariff rates and lagged values
Conclusion
Low wage imports negatively affect employment growth of large firms
capital intensive firms suffer less from low imports in terms of employment growth
No significant result for skill effects Endogeneity of industry level imports is
accounted for using tariff rates
Biscourp and Kramarz for France
Distinguish between intermediate imports and imports of finished goods
Definitions:
finished good: when imported good coincides with that of importing firm (~outsourcing)
intermediate good: when imported good is different from that of importing firm
Include firm-level measures of innovation to control for skill biased technological change
:
: de
:
:
it it it it itL Tr Z S
with
L employment
Tr Tra growth
Z vector of economic shocks
S firmcharacteristics at beginning sample
Trade and Employment growth
Employment Growth
From all From EC Non-EC OECD Low wage
Δ (FG imports/sales it) -0.445** -0.432** -0.352* -0.517**
Δ (II imports/sales) -0.224** -0.239** -0.210 -0.161
Δ (exports/sales it) 0.103** 0.135** -0.027 0.054
Δ (local purchase/sales) -0.482** -0.482**
Growth of sales 0.745** 0.745**
Weighted by employ No ?o
R2 0.57 0.57
Trade and Unskilled workersChange in share of unskilled production workers in production workers
From all From EC Non-EC OECD Low wage
Δ (FG imports/sales it) -0.054** -0.028 -0.177** -0.072
Δ (II imports/sales) -0.071** -0.070** -0.197** 0.023
Δ (exports/sales it) -0.054** -0.042** -0.094* -0.090**
Δ (local purchase/sales) -0.034* -0.034*
Growth of sales 0.019** 0.019**
Weighted by employ Yes Yes
R2 0.179 0.180
Conclusion
Low wage countries do not have the negative role often described in the press
Firms importing finished goods (~outsourcing) destroy more jobs than those importing intermediates conditional on changes in local purchases
Exporting positively affects employment growth Results are robust to inclusion of technology variables
(Bloom et al) But! No controlling for endogeneity of imports and
exports
New event! The importance of China since nineties
may alter results China’s exports features some overlap
with production structures in developed countries
i.e. its effect may be more nefast on employment growth but may offer opportunities for skill upgrading
Hypothesis 1: Imports from China negatively affect firm employment growth
Hypothesis 2: Imports from China result in skill upgrading in developed countries
Imports from China, firm growth and survival and skill upgrading: Evidence from Belgium
G. Mion (LSE), H. Vandenbussche (UCL), L. Zhu (Kul)
Data ’96-2006 Education as a measure of skill at the firm-level allows within
firm skill upgrading Firm-level measure of outsourcing Distinction between final and intermediate imports
Methodology We distinguish China from other low wage countries Instruments for Trade (tariffs and exchange rates) Controls for innovation
Notes
Stylized facts: (1) Declining manufacturing employment
600
700
800
900
1000
1100
Em
ploy
me
nt
1970 1980 1990 2000 2010Year
Source: EU-KLEMS
Number of employees of Belgian manufacturing 1970-2005
Stylized facts: (2) Increasing share of non-production workers
Stylized facts: (3) More skilled labour force in manufacturing
.16
.18
.2.2
2.2
4S
hare
of s
kille
d w
orke
rs in
full
time
ente
rs/q
uite
rs
1996 1998 2000 2002 2004 2006Year
Source: calculated from BEL-FIRST; the upper line represents enters
Skill share of full time enters/quiters for Belgian manufacturing 1997-2006
Stylized facts: (4) Rising manufacturing imports from China and other low-wage countries
.01
.02
.03
.04
.05
Imp
ort p
enet
ratio
n
1994 1996 1998 2000 2002 2004Year
Note: The upper line is import penetration of China; mlanufacturing except sector 23
Import penetration of China and other low wage countries: Belgium 1995-2004
Literature:
Schott (2008) showed that China’s export similarity with OECD countries is higher than that of other non-OECD countries and this similarity is growing much faster than any other countries.
This finding highlights that firms in developed countries are much likely to face competition from Chinese exports rather than that from other low-wage countries' exports, since the later have much less similarity with their productions.
Data: main variables used Trade variables: -Industry-levl import share
-Firm-level outsourcing of finished goods
-Firm-level outsourcing of intermediate goods (similarly defined)
Firm characteristics:
-Size (log empl.)
-Average wage (wage bill/empl.)
-Labor productivity(value added/empl.)
-Capital intensity (tfa/empl.)
-Intangible capital intensity (itfa/empl.)
Trade and employment change (BJS, 2006) Econometric model:
=firm characteristics: size, labor productivity, capital intensity, intangible capital
intensity and average wage
=industry-level import share of different country groups
=firm-level outsourcing to different country groups (finished and intermediate)
=time fixed effects
=firm fixed effects
t
i
jtT
itT
itV
: 1 ' ' 'lnit
t ti jt it t i itemp c V T T
Table 2: trade and employment growth OLS IV industry IV industry and IV firm
(a)= 1% significant (b) =5% significance; (c) = 10 % significant
Table 3: trade and share of production workers OLS IV industry IV industry and IV firm-level trade
(a)= 1% significant (b) =5% significance; (c) = 10 % significant
Table 4: trade and skilled workers OLS IV industry IV industry and IV firm-level
(a)= 1% significant (b) =5% significance; (c) = 10 % significant
How much can Chinese imports explain skill upgrading?
Chinese imports alone can explain around 30% of the total skill upgrading in Belgian manufacturing during the period of 1996-2006
Trade and firm death
We estimate a linear probability model:
Whear Death is a dummy variable denoting firm death. We defined a firm as dead if it disappears from the data set in the next year or for the next two years.
' ' '
itit jt it t i itDeath c V T T
Table 5: Trade and firm death (1)
(a)= 1% significant (b) =5% significance; (c) = 10 % significant
Table 6: Trade and firm death (2)
Conclusions
Imports from low-wage countries are important in explaining employment growth in Belgian manufacturing
imports from China play more important role than that from other low-wage countries.
Firm-level outsourcing to China leads firms to upgrade their occupational composition of employment, although it does not affect the level of employment significantly.
Import competition from low-wage countries/China only has weak impact on firm death