7. Trade and jobs

Did you know?

In most European countries, 30-60% of business sector jobs were sustained by consumers in foreign markets in 2014. In the United States, only 15% but amounting to 13 million jobs.

Estimates of jobs embodied in foreign final demand can reveal the extent to which a country is integrated into the global economy. As the number of firms specialising in particular stages of global production increases, dependencies between economies deepen. The ability of economies to meet foreign final demand increasingly determines the evolution of job markets. Traditional statistics are unable to reveal the full nature of these interdependencies – notably, how consumers in one country may drive production and sustain jobs in countries further up the value chain. New indicators, based on OECD’s Inter-Country Input-Output (ICIO) database, can shed light on these relationships.

For example, in most European countries between 30% and 60% of jobs in the business sector were sustained by consumers in foreign markets in 2014. In Japan and the United States, shares are lower, reflecting their relatively large size and lower dependency on exports/imports. In spite of this, OECD estimates suggest that in 2014 the number of jobs sustained by foreign demand was about 13 million in the United States and over 8 million in Japan.

In countries such as China, India, Israel and Mexico, the share of jobs in information and communication industries meeting foreign demand was notably higher than in other industries in 2014. Between 2005 and 2014, China experienced a huge increase in its share (64%).

Another perspective on the impact of GVCs on labour markets can be provided by comparing labour shares (the share of value added devoted to compensation of employees) to produce output to meet domestic demand with that to meet foreign final demand. Tentative estimates suggest that for most OECD countries, industries in the business sector more oriented towards meeting foreign final demand (including upstream non-exporting domestic suppliers of intermediate goods and services as well as direct exporters) have higher labour shares than industries more oriented towards domestic demand.

Definitions

Jobs refer to the total number of persons engaged in production (headcounts). Labour costs refer to the labour compensation of employees as defined by the System of National Accounts. Information and communication industries correspond to ISIC Rev.3 Divisions 30, 32, 33, 64 and 72.

Measurability

Input-output accounting frameworks are sensitive to certain assumptions such as: exporting firms have the same labour productivity and, the same share of imports, in relation to output, as firms serving domestic markets. However, evidence suggests that exporting firms may have higher labour productivity and a higher share of imports for a given output, indicating that the results presented may be biased upwards. Also, the jobs estimates are not full-time equivalent measures and, the results relate to jobs sustained rather than created, as the jobs may have previously existed to serve domestic consumers.

For most countries, at the detailed level of industry used in ICIO, labour shares of value added are the same regardless of whether the output is destined for domestic or foreign consumption. This is a consequence of the assumptions used in the construction of ICIO (exceptions are China and Mexico where “processing exporters” and “global manufacturers”, respectively, are distinguished from other firms). The differences in the labour shares for the aggregate business sector thus reflect the differences in weights of underlying industries meeting domestic demand and foreign demand.