Leveraging Trade for More and Better Jobs

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Trade exposure is traditionally seen as key to job creation and poverty reduction, but its efficacy is being questioned amid global labor-market upheavals and protectionist trends. Drawing on six underlying studies, this report uses disaggregated data from 1995 to 2019 to explore the nuanced impact of trade on jobs. 

Specifically, it investigates the impact of trade exposure on job creation, labor earnings, productivity, and job quality across countries with varying income levels. It finds that trade exposure, particularly in exports and global value chains, correlates with increased employment, especially in manufacturing, where it is also associated with higher female workforce participation. 

Higher trade exposure is also associated with increased labor earnings, with wage inequality decreasing in low- and middle-income countries due to global value chain integration. Labor productivity improves with export growth, especially benefiting unskilled workers in low-tech manufacturing and agriculture in developing countries. Job quality is also enhanced with more exports, as workers move to salaried employment positions and higher value-added activities outside of production. 

However, the report notes that trade exposure does not significantly boost job numbers or reduce earnings inequality in low-income countries. It also finds that the positive effects of trade on employment, earnings, and productivity have diminished following the global financial crisis of 2007. These findings offer insights into future job and trade policy strategies.
 

KEY FINDINGS 

Trade has benefited workers overall:

• A 10% increase in exports is associated with higher employment levels (3.1%), labor earnings (3.9%) and productivity levels (0.95%) between 1995 and 2019 in the cross-country sample. The gains are largest for imported goods and services used in domestic and export production and are driven by manufacturing sectors (see charts).

• In developing economies, participation in global value chains reduced within-country inequality and has been linked to a female labor-share premium of around 4 percentage points in manufacturing firms.

• Export expansion is correlated with increased formal employment, which offers better job security, benefits, and working conditions than informal employment.

• The share of direct and indirect production activities in exports—such as those performed by craft workers, machine operators, and farm laborers—is lower in richer countries than in poorer countries.

But there are areas for concern: 

• The linkages between trade and jobs have been weaker for lower-income countries than for richer countries. In low-income countries, increases in labor demand due to higher trade induce labor movement from informal to formal employment rather than increasing overall employment levels.  In addition, commodity-based exports tend to be more capital-intensive, even within manufacturing (such as petrochemicals, minerals, and metals), thereby resulting in lower employment gains. 

• Linkages weakened after the global financial crisis of 2007.
   

Boosting participation in trade alone is not enough, and complementary policies are needed for people, sectors, and places:

• Policies for people include social safety nets, skills upgrading, and support for people switching occupations, sectors or places.

• Policies for sectors cover issues like investment and competition policy and the protection of intellectual property in addition to trade policy.

• Policies for places include improving institutional quality and connectivity to facilitate the movement of traded goods and services and seize trade opportunities.

ABOUT THE AUTHORS 

Maryla Maliszewska is a Senior Economist in the Trade Unit at the World Bank. Her areas of expertise cover the economic assessment of climate-change and mitigation policies, structural and demographic transitions, geopolitical tensions, and the impact trade policy reforms on growth, trade, poverty, jobs, and income distribution in developing countries.

Deborah Winkler is a Senior Economist in the World Bank’s Trade Unit. She leads research on policy-relevant analytical studies and knowledge products, focusing on trade in goods, services and global value chains; their determinants; their economic and social impacts; and the mediating role of trade and other policy. Deborah provides policy analysis and advice to client countries across all regions.