, INVESTMENT AND COMPETITIVENESS | TRADE, INVESTMENT AND COMPETITIVENESS | TRADE, INVESTMENT AND COMPETITIVENESS PETITIVENESS | TRADE, INVESTMENT AND COMPETITIVENESS | TRADE, INVESTMENT AND COMPETITIVENESS | MACROECON , INVESTMENT AND COMPETITIVENESS | TRADE, INVESTMENT AND COMPETITIVENESS | TRADE, INVESTMENT AND COMPETITIVENESS TRADE, INVESTMENT AND COMPETITIVENESS PETITIVENESS | TRADE, INVESTMENT AND COMPETITIVENESS | TRADE, INVESTMENT AND COMPETITIVENESS | MACROECON LEVERAGING Prosperity Insight Series TRADE FOR MORE Maryla Maliszewska and Deborah Winkler AND BETTER JOBS click here for direct access. available at http://reproducibility.worldbank.org, A verified reproducibility package for this publication is PETITIVENESS | TRADE, INVESTMENT AND COMPETITIVENESS | TRADE, INVESTMENT AND COMPETITIVENESS | MACROECON LEVERAGING TRADE FOR MORE Maryla Maliszewska and Deborah Winkler AND BETTER JOBS © [2024] International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy, completeness, or currency of the data included in this work and does not assume responsibility for any errors, omissions, or discrepancies in the information, or liability with respect to the use of or failure to use the information, methods, processes, or conclusions set forth. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Nothing herein shall constitute or be construed or considered to be a limitation upon or waiver of the privileges and immunities of The World Bank, all of which are specifically reserved. Rights and Permissions The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. Cover photo: © tfk / Adobe Stock file #687035400. The photo has been generated with AI. Further permission required for reuse. TABLE OF CONTENTS Preface i Acknowledgments ii Abstract iii Executive Summary 1 1. Introduction 3 An Ongoing Debate 4 Taking a Fresh Look 6 2. Trade and Employment Levels 8 3. Trade and Labor Earnings 15 4. Trade and Labor Productivity 19 5. Trade and Job Quality 22 6. Main Messages 27 Annex A: Background Studies 30 Endnotes 31 References 32 Boxes Box 1: A new cross-country database regarding exposure to trade and labor market outcomes 6 Box 2: The estimation strategy underlying this report’s findings  11 Figures Figure 1: The average share of employment in exports as part of total employment rose over 1995–2018 9 Figure 2: Employment in exports surged, but then declined in low- and middle-income countries 10 Figure 3: Employment levels are positively correlated with exposure to trade  12 Figure 4: Firms that are more integrated in the global economy employ more women 13 Figure 5: Labor earnings rise with exposure to trade 16 Figure 6: Exposure to trade is linked to reduced inequality in labor earnings in developing countries 17 Figure 7: Labor productivity rises with exposure to trade 20 Figure 8: Labor productivity of export activities has stagnated overall 21 Figure 9: The share of salaried jobs in total employment is higher when exports grow faster 23 Figure 10: The share of good jobs in exports increases as countries develop 25 LEVERAGING TRADE FOR MORE AND BETTER JOBS i Prosperity Insight Preface In the next 10 years, 1.1 billion young people in the global South will become working age adults (Ajay Banga, 2023). Yet only 325 million new jobs are expected to be created during this period. Unless that gap is filled, the chances of ending global poverty seem scant. Trade has long been viewed as a driver of growth and jobs. But today this is being reassessed amid accusations of “overglobalization” and increased global uncertainty. Do the broad-based benefits of openness to trade outweigh the costs to individual workers, individuals, and communities? What is the potential of greater trade integration to create more and better jobs in today’s global environment? And what are the channels of job creation? Those are among the questions that prompted this study, “Leveraging Trade for More and Better Jobs.” Reevaluating the evidence on trade and jobs necessitates detailed country data, broken down by sectors, firms, and occupations. A key achievement of the six background studies for this report was the assembly of a consistent database of disaggregated labor-market outcomes across countries. The underlying data and analysis have been made available as part of the World Bank’s commitment to replicability. The study confirms the positive role of trade on job creation, labor earnings, formality, and women’s employment. But it is also true that aggregates are not gains for each individual. And there are transition costs. A comprehensive and actionable policy framework is needed to maximize aggregate labor market gains from trade while minimizing adjustment costs for workers, differentiating between policies for people, sectors, and places. Instead of blaming trade for job loss or job insecurity, policymakers can leverage the benefits of trade for jobs and growth while complementing the policy environment with measures that deal with the old challenges of transition and the new challenges of technological change and global economic slowdown. Mona Haddad Director for Trade, Investment and Competitiveness LEVERAGING TRADE FOR MORE AND BETTER JOBS ii Prosperity Insight Acknowledgments This report, Leveraging Trade for More and Better Jobs, was prepared by Maryla Maliszewska and Deborah Winkler (co-Task Team Leaders) under the overall guidance of Mona Haddad, Director for Trade, Investment and Competitiveness, Sébastien Dessus, Practice Manager of the Global Trade and Regional Integration Unit, and Antonio Nucifora (former Practice Manager). The authors are grateful to Martín Rama for his valuable advice and support with the drafting of the final report. The work was financed by the Umbrella Facility for Trade Trust Fund. This report presents an overview of underlying research produced by the following core team members: Luis Aguilar Luna, Hagen Kruse, Piotr Lewandowski, Karol Madón, Israel Osorio-Rodarte, Brenda Samaniego de la Parra, Ben Shepherd, Eugenia Suarez, Emmanuel Vazquez, and Gaaitzen de Vries. Valuable contributions were made by Erwin Corong, Malin Linnea Sofia Ed, Elcin Koten, Hans Lofgren, Dominique van der Mensbrugghe, Matteo Morgandi, and Wen Jean Yuan. The authors extend their gratitude to Bruce Ross-Larson and Chris Wellisz for their outstanding editorial support, Na Kyoung Kang for providing the design, and Youjin Choi for her helpful guidance on the publication process. They also thank Luis Aguilar Luna for spearheading the data replicability exercise and Pechiyappan Muthukumar for the creation of the Activities in Exports dashboard. Tanya Cubbins provided exceptional administrative assistance. The authors would also like to thank the participants of the two authors’ workshops who served as chairs, discussants, and presenters, including Erhan Artuç, Paulo Bastos, Eddy Bekkers, Claudia Berg, Maxi Cali, Thomas Farole, Ana Fernandes, Gladys Lopez-Acevedo, Douglas Nelson, Bob Rijkers, Raymond Robertson, Daria Taglioni, Enxhi Tresa, and Jorge Tudela Pye. In addition, the authors are grateful to the World Bank peer reviewers who provided useful comments that considerably helped to improve the quality of the report: Erhan Artuç, Mary Hallward-Driemeier, Claire Hollweg, Dino Merotto, and Nithin Umapati. Additional helpful comments were received from Aart Kraay, Daniel Lederman, Gladys Lopez-Acevedo, Gaurav Nayyar, and Shu Yu. Finally, the work benefited from useful discussions with Paul Brenton, Carlos Castelan, Harry Edmund Moroz, Jakob Engel, Bernard Hoekman, and Hernan Winkler. LEVERAGING TRADE FOR MORE AND BETTER JOBS iii Prosperity Insight Abstract Trade exposure is traditionally seen as key to job creation and poverty reduction, but its efficacy is 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 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, transitioning 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. LEVERAGING TRADE FOR MORE AND BETTER JOBS iv Prosperity Insight © PRASANNAPIX. Adobe Stock File # 591373215. Further permission required for reuse. LEVERAGING TRADE FOR MORE AND BETTER JOBS 1 Prosperity Insight ES. EXECUTIVE SUMMARY The creation of more and better jobs stands as a pivotal goal for countries aiming to alleviate poverty and bridge disparities in income, while also fostering a sense of purpose, dignity, and cohesion among their citizens. Trade exposure has traditionally been regarded as a potent instrument in achieving these objectives. Trade exposure describes the extent to which firms, sectors or economies could be affected by trade through mechanisms such as access to export markets or the adoption of foreign technologies. Nonetheless, the beneficial link between trade and employment has come under scrutiny in recent years. Labor markets, both in advanced and developing economies, have faced upheavals due to a confluence of factors, including rapid technological advancements, the geographic shifting of production and intense import competition. Meanwhile, trade has been subject to disruptions marked by policy shifts toward more protectionism, and a series of shocks that have cast doubt on the reliability of global supply chains. This report attempts to impartially uncover reliable evidence concerning the relationship between trade and jobs. As such, it draws on six retrospective empirical studies using novel, disaggregated data from a large number of countries spanning all development levels. The report does not propose specific policy directives, but instead presents the following key findings, concluding that trade has been good for workers in developing countries: Trade and employment levels: The number and share of export-dependent jobs has been increasing between 1995 and 2018 in all income-level countries. This expansion accounts for jobs in domestic sectors that supply commodities, inputs, LEVERAGING TRADE FOR MORE AND BETTER JOBS 2 Prosperity Insight and services to export sectors. Larger trade exposure is associated with increases in employment. The relationship is particularly strong for imports of intermediate inputs used for domestic and export production. It is also strong for exports and participation in global value chains, especially in manufacturing. Manufacturing firms engaged in international trade consistently hire more women in proportion to their workforce as compared with firms not engaged in international trade. Trade and labor earnings: Growing trade exposure is also linked to higher labor earnings. Trade growth raises labor earnings even more strongly than it expands the number of jobs within sectors, implying a direct gain for incumbent workers, especially for those employed in the business services sectors. Wage inequality decreases in low- and middle-income countries that see a rise in routine-intensive employment as a result of deeper global value chain integration. In contrast, wage disparities typically expand in high-income countries where such integration reduces routine-intensive tasks. Trade and labor productivity: Labor productivity, as measured by the value added per worker, rises as export volumes grow. The links are strong in manufacturing— especially at the low-tech end—and in agriculture. This is encouraging for developing countries, as these sectors employ mostly unskilled workers. Trade and job quality: The quality of jobs improves as exports increase. The improvement in job quality includes transitions toward more salaried employment positions and toward higher value-added activities outside of production. Nonetheless, the analyses also provide support for some concerns. First, unlike middle-income countries, exposure to trade in low-income countries does not seem to create large numbers of jobs, nor does it significantly reduce inequality in labor earnings. Second, the positive links of employment, labor earnings and productivity with trade exposure have weakened after the global financial crisis of 2007. Acknowledging the profound relationships between trade and jobs, the insights gleaned from this report can help shape the formulation of future strategies pertaining to both jobs and trade. LEVERAGING TRADE FOR MORE AND BETTER JOBS 3 Prosperity Insight © moofushi. Adobe Stock File # 524731364. Further permission required for reuse. 1. INTRODUCTION Greater exposure to international trade was better jobs is arguably the cornerstone of economic traditionally credited with employment creation and and social development. People work their way out of better jobs, as evidenced by higher labor productivity hardship through higher earnings. Economies grow as and earnings, and even better working conditions. people become better at what they do, and as more This made global integration a very promising productive jobs are created, while less productive economic policy tool. The creation of more and ones disappear. Societies flourish as jobs bring LEVERAGING TRADE FOR MORE AND BETTER JOBS 4 Prosperity Insight people together and nurture a sense of opportunity gained ground. This eroding consensus is disturbing, (World Bank 2013). since whether to integrate globally is one of the most critical policy choices facing developing However, this sanguine assessment is being countries. Therefore, the divergence of views calls increasingly questioned. New technologies are putting for dispassionately assessing the labor impacts of a premium on skilled labor, potentially changing exposure to trade and identifying the types of sectors, comparative advantages. Climate mitigation policies countries and population groups that could be hurt. are benefiting cleaner activities, while leaving existing assets stranded. On top of these deeper trends, the Providing such an assessment is the goal of this COVID-19 pandemic disrupted global value chains report. Underlying it are six background studies and investment flows. Since then, the war in Ukraine that break new ground concerning the relationship and the international sanctions imposed on Russia between trade and labor market outcomes in recent have hit trade in agricultural, food, and energy times (annex A). Five of the studies, sharing a common commodities. These fundamental shifts, global crises, methodology for the analysis of disaggregated data and geopolitical tensions have, in turn, intensified across countries, form the backbone of the report. protectionist pressures. A few others, focused on specific countries, add granularity to the findings and provide valuable Not surprisingly, an alternative narrative associating clues regarding the potential mechanisms at play. global integration with jobless growth, depressed Although the studies are technical, their findings are earnings, and more precarious jobs has gradually organized in a way that is easy to grasp. An Ongoing Debate Multiple related literatures address the ongoing high-productivity activities in manufacturing and academic and policy debate concerning how services sectors. The transition from agriculture international trade affects domestic labor markets. to manufacturing and from self-employment to Building on articulated analytical frameworks or wage employment by countries in East Africa, clever empirical breakthroughs, each of these East Asia, and South Asia is consistent with this literatures emphasizes one mechanism through perspective (Artuç and others 2019; Erten, Leight which exposure to trade could matter, whether and Tregenna 2019; McCaig and Pavcnik 2018; positively or negatively. Ngoma 2023). Key arguments concerning the beneficial impacts • Productivity gains. Increased trade not only of trade include: intensifies competition, indirectly increasing productivity through more efficient allocation of • Employment creation. Developing countries resources—it also directly boosts productivity have abundant, but relatively unskilled labor (Wagner 2007). Positive spillovers stem from forces. Trade integration taps this comparative access to better inputs and services, as well advantage, transforming economic structures as from participation in global value chains and increasing the demand for labor. Structural (Alfaro-Urena, Manelici, and Vasquez 2022; transformation describes how economies shift Amiti and Konings 2007; Arnold, Javorcik, and from low-productivity activities in agriculture to Mattoo 2011). There are also spillovers from LEVERAGING TRADE FOR MORE AND BETTER JOBS 5 Prosperity Insight the associated foreign direct investment in and value chains are biased toward higher skills (Rodrik across sectors (Fernandes and Paunov 2012; 2018). These changes in technology and trade Havranek and Irsova 2011; Javorcik 2004). reduce the comparative advantage of developing countries, while also leading manufacturing • Distributional impacts. Higher labor demand from employment to peak at ever-smaller shares of the greater exposure to trade contributes to poverty labor force over time (Hallward-Driemeier and reduction (Castilho, Menéndez, and Sztulman Nayyar 2017; Rodrik 2016). 2012; Engel and others 2021; McCaig 2011; Rodríguez-Castelán, Vazquez, and Winkler 2020). • Increased market power. Trade liberalization By raising the relative wages of unskilled workers, may enhance the market power of incumbent it can reduce inequality (Amiti and Davis 2012; firms by helping them to lower their production Chiquiar 2008). Further, by increasing household costs, resulting in reduced marginal costs and incomes, it can also reduce child labor (Edmonds higher markups (De Loecker and others 2016). and Pavcnik 2006). The benefits from greater international integration may also be appropriated by a few players. They • Social development. In low-income countries, may be more advanced joint ventures amid low- exposure to trade leads to enhanced employment productivity local firms (Aitken and Harrison opportunities for women, especially through 1999). Alternatively, they may be large buyers with increased production of garments and footwear significant monopsony power amid a myriad of for export (Lopez-Acevedo and Robertson 2016; local suppliers (Javorcik, Keller, and Tybout 2008). Robertson and others 2020; World Bank and WTO 2020). To participate in global markets, • Adverse local impacts. Opening to trade erodes firms need to be formal, which in turn may lead to rents, resulting in lower wages in the affected a higher formalization of labor forces (Artuç and sectors and regions (Castilho, Menéndez, and others 2019; McCaig and Pavcnik 2018). Sztulman 2012; Revenga 1997). The net gains from trade critically depend on the ability of • Institutional development. The international resources to move from shrinking to expanding architecture supporting global integration has sectors. However, mobility barriers durably increasingly dealt with issues beyond trade. depress employment and earnings in adversely At a multilateral level, they include intellectual affected regions (Autor, Dorn, and Hanson 2013, property rights, contract enforcement, and 2016; Dix-Carneiro and Kovak 2017; Erten, sanitary standards. In addition, deep regional Leight, and Tregenna 2019; Topalova 2010). trade agreements touch on market competition, state-owned enterprises, and even labor • A race to the bottom. Building an international standards (Mattoo, Rocha, and Ruta 2020). architecture to support international trade is easier than enforcing compliance with environmental More recently, the case that trade may not be as norms and core labor standards across countries. beneficial to workers as was traditionally claimed This asymmetry creates incentives for countries to has rested on: compete in international markets by undercutting • Premature deindustrialization. Computers and workers’ bargaining power, social protection robots are making manufacturing less labor- legislation, and health and safety standards intensive (Acemoğlu and Restrepo 2020; Frey and (Davies and Vadlamannati 2013; Olney 2013). Osborne 2017; World Bank 2019). In addition, global LEVERAGING TRADE FOR MORE AND BETTER JOBS 6 Prosperity Insight Taking a Fresh Look The ongoing debate concerning the impacts of To address these challenges, a major contribution of international trade on jobs mandates a fresh the six background studies for this report has been empirical assessment. The literature behind the to assemble a consistent database of disaggregated two conflicting perspectives lead to testable labor market outcomes across countries (box 1). predictions. Greater openness to trade may or This new database spans advanced economies may not increase employment. It may or may not and developing countries. It includes indicators result in higher labor earnings and higher labor for employment levels, labor earnings, labor productivity. Furthermore, it may or may not be productivity, and the quality of jobs. In addition, associated with better jobs overall. Thus, the goal it covers manufacturing, agriculture, mining, and of this report is to assess these predictions in the services. As such, it accounts for both direct and most matter-of-fact way possible, almost in the indirect employment effects. Exports are linked spirit of a scorecard. to (direct) employment within the sector of export activities. They also account for a large portion of Letting the facts speak for themselves requires (indirect) employment in domestic sectors that going beyond case studies for individual countries supply commodities, parts, components, and in which labor market responses to specific trade services to exporters. reforms or economic shocks are evaluated. Such studies have the advantage of their granularity, Moreover, while previous exercises considered and they may help uncover the mechanisms at trade openness and foreign direct investment as play. Thus, they are an important complement to indicators of a country’s exposure to international the analysis. However, case studies may not be markets, the database underlying this report also representative, and they may fail to identify the most focuses on exports, imports, and participation in relevant patterns across countries. The alternative global value chains. Following previous studies, four is to rely on cross-country data.1 Taking a fresh look types of value chain participation are considered: at the evidence requires granular country data at commodities, limited manufacturing, advanced the level of sectors, firms, and occupations.2 manufacturing and services, and innovative activities (World Bank 2020). LEVERAGING TRADE FOR MORE AND BETTER JOBS 7 Prosperity Insight BOX 1: A new cross-country database regarding exposure to trade and labor market outcomes Together, the six background studies underlying this report combine data spanning a large number of countries at all levels of socioeconomic development. The primary sources are individual records from databases maintained by multilateral institutions, including the OECD and the World Bank, as well as national statistical offices. The main indicators considered are: • Value added in trade. The data are from national accounts. Their construction requires the use of input- output tables at the national level. Relying on price deflators by sectors ensures international comparability. Data from the 2023 (2021) release are used for 60 (51) countries, covering the full spectrum of income levels over 1995–2020 (1995–2018), and including 45 sectors. • Employment and labor earnings in exports. Individual records are from labor force surveys, socioeconomic surveys, and population and economic censuses. Occupational and sectoral classifications are standardized. Data concerning direct and indirect employment and labor incomes for 45 sectors are used for 60 (51) countries drawing on the 2023 (2021) release, covering the full spectrum of income levels over 1995–2020 (1995–2018). • Labor competencies. The focus is on the different tasks performed at the worker level, and on the type of skills involved in each. Despite slightly different indicators and national coverage, a combination of several sources allows for the generation of data for 38 countries across a wide spectrum of incomes and 23 sectors over 2012–2017. • Export jobs and income activities. Five occupational categories are considered—engineering, managerial, support services, production, and other activities. Input-output tables are used to estimate export jobs and income activities. The resulting data are for 59 countries and 20 sectors across all incomes covering 2000–2018. For a subset of 52 countries, data are available for 35 sectors. • Female employment. Data are from firms’ records in the most recent enterprise survey available for each country. Excluding surveys with patchy data and firms in service sectors leaves a sample covering 64 low- and middle-income countries and 22 manufacturing sectors over 2010–2017. Although the database used for this report covers both advanced economies and developing countries, the analysis emphasizes findings in the latter group. Source: Authors’ elaboration based on the background studies listed in Annex A. LEVERAGING TRADE FOR MORE AND BETTER JOBS 8 Prosperity Insight © moofushi. michaeljung. Adobe Stock File # 71198488. Further permission required for reuse. 2. TRADE AND EMPLOYMENT LEVELS This report’s new database reveals interesting export activities expanded from 26.5 percent in patterns concerning the number and share of jobs 2000 to 28.7 percent in 2018. The dependence associated with exports. First, an increasing share of employment on exports increased in countries of employment depends directly or indirectly at all income levels. By 2018, almost a third of on exports. In 71 countries across all incomes, employment in high-income countries was tied to the average percentage of employment tied to exports, whereas this share exceeded 26 percent LEVERAGING TRADE FOR MORE AND BETTER JOBS 9 Prosperity Insight in low- and middle-income countries. Dependence considerably in small economies, but plays a of employment on exports increased in 45 of minor role in commodity-exporting countries the 71 countries. However, it varies: it matters (figure 1). Figure 1: The average share of employment in exports as part of total employment rose over 1995–2018 6 Employment in exports (% of total employment) 1995* 4 2 y=x High income Upper-middle income Lower-middle income Low income 0 0 2 4 6 Employment in exports (% of total employment) 2018 Source: OECD Trade in Employment data (2023 release), and World Bank Activities in Exports data produced for this report. Note: For country abbreviations, see International Organization for Standardization (ISO), https://www.iso.org/obp/ui/#search. Figure 1 is based on a sample of 71 countries drawing on data from the OECD (61 countries) and the World Bank (10 countries) to maximize country coverage. Their classification into 29 high-income economies and 42 low- and middle-income countries is based on their World Bank income per capita classification in 1995. *Due to data unavailability, employment and income classifications for the year 2000 were used for Bangladesh, Cambodia, Ethiopia, Fiji, Ghana, the Kyrgyz Republic, Sri Lanka, Mongolia, Nepal, and Pakistan. Second, the data also show that in low- and middle- the trend was reversed afterward, and by 2018 income countries, the number of jobs created total employment in exports had declined by 45 in export sectors and their suppliers increased million (figure 2). strongly until the global financial crisis, especially In low- and middle-income countries, the biggest in manufacturing. From 1995 to 2007, direct and contraction of employment in exports was in textiles indirect employment in exports increased by 133 and apparel, followed by other manufacturing, million, of which employment increased by 80 foodstuffs, agriculture, and wood products. However, million in China and 30 million in India. However, LEVERAGING TRADE FOR MORE AND BETTER JOBS 10 Prosperity Insight the variation across countries was significant, with differ, the increased technology-intensity of the number of jobs sustained by manufacturing production, especially in manufacturing global exports plummeting in China, but increasing in newly value chains, is akin to the adoption of higher emerging countries such as Viet Nam. quality standards and rising demand for skilled labor, thus raising the barriers for low-skilled labor The emergence of new technologies and offshoring (Rodrik 2018). In addition, some middle-income may explain this recent decline of manufacturing countries, most notably China, have started to export-linked employment in low- and middle- offshore labor-intensive production to lower-cost income countries. Although country experiences locations. Figure 2: Employment in exports surged, but then declined in low- and middle-income countries High-income economies (in millions) Low- and middle-income countries (in millions) 100 350 90 300 80 70 250 60 200 50 40 150 30 100 20 50 10 0 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Agriculture Mining Manufacturing Business services Other services Source: Winkler and others (2023). Note: Data are for 51 countries. Their classification into 25 high-income economies and 26 low- and middle-income countries is based on their World Bank income per capita classification as of 1995. It does not follow that these changes in direct and based on a minimal set of theoretical assumptions. indirect employment were caused by changes in Otherwise, there could be a suspicion that obscure exposure to trade. Furthermore, in parallel, there methodological choices drive the results. In this might have also been changes in labor earnings, spirit, the empirical analyses in the six background labor productivity, and job quality. Thus, assessing studies for this report all use a methodological the broader relationship between labor market approach that is essentially descriptive (box 2). outcomes and exposure to trade requires a rigorous The findings are on occasion interpreted based on statistical analysis, beyond correlations. the mechanisms uncovered by more detailed case studies. However, the primary objective here is to Ideally, the relationship between labor market more definitively establish the key patterns. outcomes and exposure to trade should be assessed LEVERAGING TRADE FOR MORE AND BETTER JOBS 11 Prosperity Insight BOX 2: The estimation strategy underlying this report’s findings The descriptive approach chosen for this report aims to estimate how key labor market outcomes react to various measures of exposure to trade, including exports, imports, and participation in global value chains. The goal is to quantify by how much the employment levels, labor earnings, labor productivity, or job quality vary for each percentage point of change in the selected trade indicator. These trade elasticities are informative on their own. For instance, they may show whether employment levels are more responsive to growth in exports or in imports—or whether greater exposure to trade leads to faster growth in formal or total employment. Comparisons between elasticities for different labor market outcomes can be informative as well. For example, if the response of labor earnings is larger than that of employment levels, then average earnings per worker probably increased along the way. Estimating these trade elasticities raises two statistical challenges. First, other economic forces may systematically influence the key indicators in the analysis. For example, smaller countries may have lower employment levels and be more open to trade than larger ones. Failure to take this regularity into account would make openness to trade look more detrimental to employment than it is. To address this challenge, to the extent possible, the analyses in the background studies rely on panel data regressions that control for country-sector, country-time, and sector-time fixed effects. They also include appropriate controls at the corresponding levels of analysis (firms, workers, sectors, and municipalities). Second, an association between two indicators does not necessarily determine causality. For instance, a positive productivity shock in a sector could increase both its employment and its exports. However, a naïve analysis would attribute the jump in employment to the commensurate jump in exports, which is misleading. This second problem is treated by removing any induced changes in the indicators measuring exposure to trade. In practice, most of the analyses in the background studies for this report instrument all trade indicators at the sector level, based on the corresponding indicators in countries that are structurally similar, either because they are neighbors or because they show similar participation in global value chains or trade more broadly. As the number of countries with the required data varies across indicators, the statistical analyses are based on similar, but not identical samples. However, the geographic span of the database used is sufficient to ensure that a diverse set of countries at all development levels is included in the analysis. Robustness checks, disaggregating the sample by type of countries, provide further reassurance concerning the comparability of the results. Source: Authors. An analysis in one of the background studies shows It finds that it is significantly positive, regardless of that greater exposure to trade is unambiguously the trade indicator. associated with more jobs (Winkler and others The analysis distinguishes between total trade 2023). It considers a sample of 48 countries at all volumes and trade resulting from participation in development levels over 1995–2018 and includes global value chains. When considering the former, firms in 45 sectors of activity. The study estimates employment is especially responsive to changes the change in employment levels in a given sector in imports of intermediate inputs. The effect is as trade volumes increase in the same sector. also substantial when considering changes in total LEVERAGING TRADE FOR MORE AND BETTER JOBS 12 Prosperity Insight exports, but less so for imports of final products Participation in global value chains also leads to (figure 3, left panel). substantial increases in employment (figure 3, right panel). However, here again, the differences are Replicating the analysis at more disaggregated substantial depending on the sectors and types of levels shows that the employment link with exposure global value chains in which countries participate. to trade varies across sectors. The link is strongest Innovative global value chains do not lead to when the trade indicator refers to the manufacturing substantial job creation, and the employment link sector. It is more modest in the services sector, and is limited for commodities too. Yet, global value turns negative in resource-based sectors, such as chains in limited manufacturing, and especially in agriculture and, especially, mining. advanced manufacturing and services, have strong employment links (Winkler and others 2023). Figure 3: Employment levels are positively correlated with exposure to trade Trade Trade in global value chains % increase in employment associated with a % increase in employment associated with a 10% increase in trade 10% increase in GVC participation 5 10 8 4 6 3 4 2 2 0 -2 1 -4 0 -6 Exports Intermediate imports Final imports l hi re, g g ch te g - ne tec - es es ta in rin . fg h ic ic ng ch te m f fis ltu To in iu M ed M rv rv tu w M u se se ac -lo ric uf ss er Ag fg -m an th ed M gh O M m si Bu hi Employment Backward GVC participation Forward GVC participation Source: Winkler and others (2023). Note: GVC = global value chain; Mfg = Manufacturing. The figures report the estimated percentage change in employment levels for a 10-percent change in trade volumes. Regressions include the corresponding (instrumented) trade indicator and fixed effects for country-sector, country-time, and sector-time. The data are for 48 countries (including 23 high-income and 25 low- and middle-income countries in accordance with their World Bank income per capita classification for 1995) and 45 sectors over 1995–2018. All results are statistically significant at the 10-percent level and above the critical value for the Kleibergen-Paap test. Backward GVC participation measures the share of imported inputs used for export production. Forward GVC participation measures the share of domestic value added embodied in third-country exports. Both measures ensure that trade flows cross at least two country borders and are computed as a share of total exports. However, the change in employment as captured have significant input–output linkages, so that much by these regression estimates does not necessarily of the job creation or destruction associated with happen in the same sector. Manufacturing and mining them is indirect. Regarding agriculture and services, LEVERAGING TRADE FOR MORE AND BETTER JOBS 13 Prosperity Insight by contrast, there is less reliance on inputs from firms participating in international trade employ other sectors, so most job creation or destruction is relatively more women. direct (Winkler and others 2023). To answer this question, one of the background Another analysis for this report focuses on the studies applied the same methodological approach gender breakdown of employment in manufacturing to the female share of employment (Rocha and firms exposed to international trade, relative to the Winkler 2019). The data are for 64 low- and middle- rest of the economy (Rocha and Winkler 2019). income countries during 2010–2017, and they The focus on female employment is justified from include 22 manufacturing sectors of activity. The a development perspective because of its proven results show that firms exposed to international impacts on marriage age, fertility rates, investments trade consistently hired more women, regardless in children, and women’s agency more broadly of the type of trade exposure (figure 4). Indeed, (World Bank 2012; World Bank and WTO 2020). the female labor share premium is stronger among exporting firms and those participating in global Yet, the female labor shares of employment vary value chains, reaching around 4 percentage points dramatically across countries, from more than a half on average. However, it is also significant among in some parts of the former Soviet Union to less than importing firms and those supported by foreign a fifth in several countries in the Middle East, North direct investment. The average female labor share Africa, and South Asia (Rocha and Winkler 2019). If for exporters is a third, while that for non-exporters the latter could increase their female employment is less than a quarter. In other words, the firms’ by engaging more actively in international markets, trading status explains half of the observed gap in then a breakthrough in development could be the female labor share between exporting and non- achieved. This raises the question as to whether exporting firms. Figure 4: Firms that are more integrated in the global economy employ more women Female labor share premium (percentage points) 6 5 4 3 2 1 0 Exporting vs. Importing vs. GVC participants vs. FDI vs. non-FDI non-exporting firms non-importing firms non-participants Total workers Production workers Non-production workers Source: Rocha and Winkler (2019). Note: FDI= foreign direct investment; GVC= global value chain. The figures report the estimated difference in the share of female employment in terms of percentage points for the corresponding trade indicator and type of worker. The underlying regressions include the trade indicator, firm characteristics, and country, region, time, and sector fixed effects. Data are for 64 low- and middle-income countries (in accordance with their World Bank income per capita classification of the respective survey year) and 22 manufacturing sectors during 2010–2017. All reported results are statistically significant at the 10-percent level. LEVERAGING TRADE FOR MORE AND BETTER JOBS 14 Prosperity Insight These results are not driven by a few sectors, These analyses also uncover two issues that should such as wearable apparel production or office, be a matter for concern. First, the relationship accounting, and computing services. If these between exposure to trade and employment sectors are excluded from the statistical analysis, levels is stronger before the global financial crisis. the positive relationship between exposure to When considering participation in exports only, the international markets and female employment estimates for 2007–2018 only are not statistically remains. If anything, it becomes slightly stronger significant. for firms with foreign direct investment and slightly Second, when considering the entire period, the weaker among exporting firms, but the differences estimated employment effects are weaker for the are minor (Rocha and Winkler 2019). low-income countries. Regarding participation in In sum, the analyses by the background studies for global value chains for limited manufacturing, the this report suggest that a greater exposure to trade estimated change in employment for a 10-percent boosts both total and female employment in low- change in export volumes is 1.3 percent—only and middle-income countries. about a third of that for richer countries (Winkler and others 2023). LEVERAGING TRADE FOR MORE AND BETTER JOBS 15 Prosperity Insight © totojang1977. Adobe Stock File # 383254182. Further permission required for reuse. 3. TRADE AND LABOR EARNINGS The methodological approach used to assess As before, the estimated effects are stronger for the relationship between exposure to trade and imports of intermediate inputs than for exports or employment levels can be applied to the labor for imports of final products (figure 5, left panel). earnings of individuals working in different sectors. In addition, they are also stronger for participation Once again, what emerges is a statistically significant in value chains in manufacturing than for those in relationship, regardless of the trade indicator. commodities or in services (figure 5, right panel). LEVERAGING TRADE FOR MORE AND BETTER JOBS 16 Prosperity Insight Figure 5: Labor earnings rise with exposure to trade Trade Trade in global value chains % increase in labor earnings associated with a % increase in labor earnings associated with a 10% increase in trade 10% increase in GVC participation 8 10 7 8 6 6 5 4 4 3 2 2 0 1 0 -2 Exports Intermediate imports Final imports l hi re, g g ch te g - ne tec - es es ta in rin . fg ic ic ng ch h te m f fis ltu To in iu M ed M rv rv tu w M u se se ac -lo ric uf ss er Ag fg -m an th ed M gh O M m si Bu hi Backward GVC participation Forward GVC participation Source: Winkler and others (2023). Note: GVC = global value chain; Mfg = Manufacturing. The figures report the estimated percentage change in labor earnings for a 10-percent change in trade volumes. Regressions include the corresponding (instrumented) trade indicator and fixed effects for country-sectors, country-time, and sector-time. Data are for 48 countries (23 high-income and 25 low- and middle-income countries in accordance with their World Bank income per capita classification for 1995) and 45 sectors over 1995–2018. All results are statistically significant at the 10-percent level and above the critical value for the Kleibergen-Paap test. Backward GVC participation measures the share of imported inputs used for export production. Forward GVC participation measures the share of domestic value added embodied in third-country exports. Both measures ensure that trade flows cross at least two country borders and are computed as a share of total exports. Participating in international markets has two effects prevails is an empirical question. implications for average labor earnings, as well An analysis conducted as part of one of the as for their distribution. Participation in global background studies assesses the significance value chains is especially relevant, as the jobs of these two effects across 38 countries at all involved are substantially different and not all of development levels, building on data collected by them tend to be outsourced to the same extent. various surveys over 2011–2018 (Lewandowski, In developing countries, there is an increase in Madoń, and Winkler 2023). Its measure of the net the demand for unskilled workers, who are those impact on inequality is the Gini Index for labor performing routine-intensive tasks. Because earnings, which varies from 0 for absolute equality these workers have lower-than-average labor to a hypothetical 100 if all labor earnings were earnings, this direct effect should reduce wage concentrated in one individual. The statistical inequality. However, there is also an indirect methodology in this case is slightly different from effect, as the routine intensity of tasks increases that used in the past. The relationship between with participation in global value chains, thereby labor earnings and participation in global value pushing wages at the lower end further down. This chains is estimated, controlling for the routine indirect effect widens inequality. Which of these LEVERAGING TRADE FOR MORE AND BETTER JOBS 17 Prosperity Insight intensity of jobs, as well as for sectors, jobs, and Mexico, and an overall increase in the richer ones worker characteristics. The same is also done for such as the United States — with the threshold the relationship between the routine intensity of separating the two roughly the same that divides jobs and the participation in global value chains. developing countries and advanced economies. These two relationships are then used to predict Thus, the analyses suggest that exposure to trade the distribution of labor earnings if there was no in low- and middle-income countries is good for participation in global value chains. labor earnings, both in terms of averages and Comparing the resulting wage distribution with distributions. This remains the case despite their the actual one yields an estimate of the impact data covering recent years, until well after the on inequality. Only the direct impact on inequality global financial crisis. is captured if the routine intensity of jobs is kept The analyses also raise an important concern. unchanged in the prediction exercise, whereas the The association between exposure to trade and full (direct and indirect) impact can be obtained inequality in labor earnings is negligible in several when the predicted routine intensity of jobs is poor countries, such as Kenya or Lao People’s used instead. Democratic Republic. The direct and indirect The results confirm that the direct effect from effects are both small, or they roughly cancel out. participating in global value chains is a reduction This result is consistent with the small impact of in the Gini Index (figure 6, top panel). By contrast, exposure to trade on employment levels. It is also the indirect effect is an increase in the Gini Index consistent with an extremely abundant supply of (figure 6, bottom panel). The net outcome of these unskilled workers, compared with the effects of two conflicting forces is an overall reduction in exposure to trade, which are quite marginal. wage inequality for poorer countries such as Figure 6: Exposure to trade is linked to reduced inequality in labor earnings in developing countries Direct effect of trade in global value chains, change in Gini index in percentage points 4 Change in Gini (in percentage points) USA 2 GHA NOR LAO NZL DNK KEN GBR FIN 0 GEO KOR IRL ARM ECU ISRDEU NLD BEL JPN AUT BOL ITA -2 FRA COL KAZ ESP LTU CHL GRC IDN SVN -4 MEX SVK RUS EST POL CZE -6 -2.0 -1.0 0.0 1.0 2.0 log GDP per capita (demeaned) LEVERAGING TRADE FOR MORE AND BETTER JOBS 18 Prosperity Insight Indirect effect through the change in the routine intensity of jobs, change in Gini index in percentage points LTU 4 USA LAO IDN GEO ISR POL SVKCZE SVN DEU GBR Change in Gini (in percentage points) DNK NOR 2 RUS GRC EST KOR AUT FRABEL ITA JPN NLD ARM ESP FIN KAZ NZL IRL KEN MEX CHL 0 ECU GHA BOL COL -2 -4 -6 -2.0 -1.0 0.0 1.0 2.0 log GDP per capita (demeaned) Source: Lewandowski, Madoń, and Winkler (2023). Note: For country abbreviations, see International Organization for Standardization (ISO), https://www.iso.org/obp/ui/#search. The figures report the estimated deviations in the Gini Index for labor earnings from participating in global value chains. (The Gini Index varies from 0 for perfect equality to 100 for maximum inequality.) Data are from 38 countries (19 high-income and 19 low- and middle-income countries in accordance with their World Bank income per capita classification of the respective survey year) and 23 sectors over 2011–2018. Estimates control for sectors, jobs, and worker characteristics. GDP per capita is reported relative to the mean. LEVERAGING TRADE FOR MORE AND BETTER JOBS 19 Prosperity Insight © Jesus Cervantes. Shutterstock Photo ID # 1998857714. Further permission required for reuse. 4. TRADE AND LABOR PRODUCTIVITY Participating in international markets—especially countries, typically with their greater abundance exporting—is a potentially important source of skilled labor and advanced technology, have of productivity gains. Traditional trade theory maintained a comparative advantage in exporting predicted that countries’ specialization in trade those goods and services that are intensive in skill according to their comparative advantages and technology. Conversely, developing countries, enhances productivity and growth. High-income which generally possess a relative abundance of LEVERAGING TRADE FOR MORE AND BETTER JOBS 20 Prosperity Insight low-cost labor and natural resources, have tended analyzing the relationship between exports and to specialize in exports that intensively use these labor productivity (Aguilar Luna and Winkler 2024). abundant factors. The results confirm a strong positive association between the two indicators. The data are from 60 The causality between trade and productivity countries at all development levels over 1995– can go both ways. To access foreign customers, 2019 and include 45 sectors. Labor productivity firms need to meet higher standards of production is measured through value added per worker. As technology, output quality, and timely delivery. before, country-sector, country-time, and sector- To become part of global value chains, firms must time fixed effects are used in the analysis, although also become integrated into complex production this time, induced changes in exports are not networks, involving more efficient input–output removed by using instrumental variables. linkages. Participation in trade also entails learning opportunities from global suppliers or clients. All Indeed, productivity gains from exposure to trade this matters for workers, given that in the long run, are higher in low- and middle-income countries gains in labor earnings can be sustained only if they than in high-income countries (figure 7, left panel). are accompanied by increases in labor productivity. The association between exports and productivity gains also holds if the trade indicator focuses more The methodology to assess the relationship between narrowly on participation in global value chains of trade exposure and employment levels and labor different types (figure 7, right panel). earnings is applied by one of the background studies Figure 7: Labor productivity rises with exposure to trade Exports Exports in global value chains % increase in labor productivity associated with a % increase in labor productivity associated with a 10% increase in trade 10% increase in exports, by type of GVC participation 1.4 1.4 1.2 1.2 1.0 1.0 0.8 0.8 0.6 0.6 0.4 0.4 0.2 0.2 0.0 0.0 All High-income Low- and Commodities Limited Advanced mfg Innovative middle-income manufacturing and services tasks Source: Aguilar Luna and Winkler (2024). Note: Mfg = Manufacturing. The figures report the estimated percentage change in labor productivity for a 10-percent change in export volumes. Labor productivity is measured as value added per worker. Regressions include the corresponding trade indicator and fixed effects for country-sector, country- time, and sector-time. Data are for 60 countries (24 high-income and 36 low- and middle-income in accordance with their World Bank income per capita classification for 1995) and 45 sectors over 1995–2019. All results are statistically significant at the 1-percent level. LEVERAGING TRADE FOR MORE AND BETTER JOBS 21 Prosperity Insight Replicating the analysis at a more disaggregated productivity across different types of global value level shows that exporting more does not have a chain participation and sectors. statistically significant link with labor productivity However, the findings of the background study also in the mining sector, and the link is modest in raise two important concerns. First, if its results other services. Conversely, the links are strong in are taken literally, a 10-percent increase in exports manufacturing—especially at the low-tech end— over 1995–2019 was associated with a 0.95 and in agriculture. percent increase in average labor productivity, but The outcome of this sectoral breakdown is with only a 0.59 percent increase in average labor encouraging for developing countries, as low-tech earnings per worker. This gap is consistent with the manufacturing and agriculture employ mostly greater market power by exporting firms. unskilled workers. Thus, the most disadvantaged Second, the estimated link of exports with labor members of the labor force could be among the productivity declined substantially after the global main beneficiaries of increased exposure to trade. financial crisis. Indeed, at the global level, value Not correcting for the possible endogeneity added per worker in export activities increased of exports could lead to overestimating their from US$ 49,600 in 1995 to US$65,700 in 2011 productivity impact, since better performing (both figures are in constant 2015 prices). However, firms are also more likely to participate in global it stagnated over the following decade (figure 8, left markets. Additional robustness checks using panel). If the numbers are taken literally, it might the instrumental variables approach confirm the even have declined for low- and middle-income positive relationship between exports and labor countries (figure 8, right panel). Figure 8: Labor productivity of export activities has stagnated overall All countries Low- and middle-income countries Labor productivity (in thousand USD) Labor productivity (in thousand USD) 70 40 35 60 30 50 25 20 40 15 30 10 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Export activities Rest of the economy Source: Aguilar Luna and Winkler (2024). Note: Labor productivity is defined as value added per worker (in thousands of US$) in constant 2015 US$ terms. Data are for 60 countries (24 high-income and 36 low- and middle-income in accordance with their World Bank income per capita classification for 1995) and 45 sectors over 1995–2020. LEVERAGING TRADE FOR MORE AND BETTER JOBS 22 Prosperity Insight © Yogendra. Adobe Stock File # 463731155. Further permission required for reuse. 5. TRADE AND JOB QUALITY Employment levels, labor earnings, and labor employment security and access to healthcare and productivity are among the most common labor pension programs—are, other things being equal, market outcomes considered, but the quality of jobs better than informal jobs. Quality also has to do with matters as well. The quality depends on the benefits the types of activities performed and their social associated with jobs, in addition to the earnings they status. For instance, other things being equal, jobs provide. For example, formal jobs—with greater in engineering, design, or finance are generally LEVERAGING TRADE FOR MORE AND BETTER JOBS 23 Prosperity Insight seen as preferable to jobs in product assembly or The data for this study are from 106 countries transportation. across all development levels over 1995–2019. The analysis is less structured than for employment One of the background studies documents how the levels, labor incomes or labor productivity, as it share of salaried jobs in total employment varies is conducted at the country level rather than at a with the growth in exports (Winkler and others disaggregated level. Also, the trade indicator is not 2023). Salaried jobs may be informal, even when instrumented to remove induced changes. However, the employers are formal firms. However, they may the results show an unambiguously positive ensure a higher stability of earnings over time. In relationship between exposure to trade and salaried addition, they are more likely to be formal than jobs employment (figure 9). in self-employment or in household businesses. Figure 9: The share of salaried jobs in total employment is higher when exports grow faster High-income countries Export growth vs. paid employment share difference (1995-2019) 15 KOR Paid employment share difference (% pts) PRT 10 ESP JPN IRL ITA 5 BEL CHEAUS NOR NZL USA SWE FIN HKG AUT FRA DNK DEU CAN 0 ISR GBR SGP NLD -5 -5 0 5 10 15 Export growth (CAGR) Fitted line High income LEVERAGING TRADE FOR MORE AND BETTER JOBS 24 Prosperity Insight Low- and middle-income countries Export growth vs. paid employment share difference (1995-2019) 40 Paid employment share difference (% pts) 30 20 10 0 -10 -5 0 5 10 15 Export growth (CAGR) Fitted line Upper-middle income Lower-middle income Low income Source: Winkler and others (2023). Note: For country abbreviations, see International Organization for Standardization (ISO), https://www.iso.org/obp/ui/#search. CAGR= Compound Annual Growth Rate. The slope in the figure indicates the relationship between the deviation in the share of salaried employment relative to its predicted value and the cumulative growth rate of exports. Export growth is based on constant 2015 US$ terms. Data are for 106 countries (24 high-income and 82 low- and middle-income in accordance with their World Bank income per capita classification for 1995) over 1995–2019. A more detailed background study applied the same greater exports at the local level expanded the local empirical methodology described above. It involves labor force by attracting more migrants. However, panel data with fixed effects and an instrumented they also reduced the informality rate, measured trade indicator—not to countries around the world, as the percentage of employees without pensions but to roughly 2,000 municipalities in Mexico or retirement benefits at work. The formalization over 2004–2014 (Vasquez and Winkler 2023).3 effect is stronger in the south of the country, which As noted, a single country is not necessarily is poorer than the average, whereas the migration representative of the entire developing world. effect is stronger in the richer north. While both However, the significance of the North American effects are observed across sectors, formalization Free Trade Agreement (NAFTA) makes the Mexican is associated with manufacturing only. experience particularly relevant to assess the Another background study for this report taps impact of integrating into global markets. detailed occupational data to assess whether This more detailed background study shows that exposure to trade is associated with more LEVERAGING TRADE FOR MORE AND BETTER JOBS 25 Prosperity Insight appealing jobs (Kruse and others 2023). Data are As countries become richer, their share of for 59 countries at all development levels over non-production activities expands, including 2000–2018. The metric is the share of labor income managerial, engineering, support services, and associated with different export activities, but the other activities (figure 10, left panel). In addition, same approach can be applied to employment labor incomes from production activities within shares, yielding similar results (Winkler and others agriculture and mining and to a lesser extent 2023). “light” manufacturing (including food and textiles) decline, whereas those in “heavy” manufacturing The results show that the share of direct and (including electrical and transport equipment) and indirect production activities in exports—such services increase (such as drivers in transport or as those performed by craft workers, machine cargo handlers in wholesaling) (figure 10, right operators, and farm laborers, among others—is panel). lower in richer countries than in poorer countries. Figure 10: The share of good jobs in exports increases as countries develop Share of activities in total incomes in exports Share of production activities in total incomes in exports, by broad sector 100 60 80 40 60 40 20 20 0 0 2,500 5,000 10,000 20,000 40,000 2,500 5,000 10,000 20,000 40,000 GDP per capita, log scale GDP per capita, log scale Engineering Managerial Support services Services Manuf industries 23t33 Production Others Manuf industries 10t22 Agriculture & mining Source: Kruse and others (2023). Note: The figures show the shares of income activities in exports in percentage terms. Data are for 52 countries (24 high-income and 28 low- and middle-income in accordance with their World Bank income per capita classification for 2000) covering 35 sectors and five occupational groups over 2000–2018. GDP per capita is measured in US$ in constant 2017 prices. The lines were obtained using a non- parametric smoother. Support services include other professionals, clerical support workers, and sales workers. Production includes craft workers and machine operators, agricultural workers, and drivers. Others include legislators, health professionals, teachers, personal support workers, and other workers. LEVERAGING TRADE FOR MORE AND BETTER JOBS 26 Prosperity Insight They also show how this transition relates to quality jobs (Kruse and others 2023). participation in international markets. Initially, The results also show that the speed of this exposure to trade leads to a change in specialization occupational transformation varies across across sectors, each with its own occupational countries. A comparison between developing mix. This would include moving from production countries that experienced substantial structural activities in apparel to electrical equipment. transformation shows that all of them follow However, at later stages, the main driver of the general pattern described above. However, change is specialization across occupations while production activities remain significant within each sector, such as from production throughout in Brazil and Ethiopia, a large share to engineering or managerial activities. Thus, of exports in China and Mexico fall under non- the traditional structural transformation from production activities—including engineering—by agriculture to industry and services is followed the end of the period. by an occupational transformation toward better- LEVERAGING TRADE FOR MORE AND BETTER JOBS 27 Prosperity Insight © Media Lens King. Adobe Stock File # 669186684. Further permission required for reuse. 6. MAIN MESSAGES Over the last two to three decades, exposure to number of countries spanning all development international trade has been associated with higher levels. employment levels, increased labor earnings, In each of these dimensions, labor outcomes higher labor productivity, and better job quality. were positive on more than one count. Not only The analyses for this report rigorously document did exposure to trade create more jobs: it did so these links, using disaggregated data from a large especially for women. Furthermore, it led to higher LEVERAGING TRADE FOR MORE AND BETTER JOBS 28 Prosperity Insight labor earnings on average, as well as reduced low-income countries, it may take time to fully reap inequality in labor earnings within many low- and the labor market dividends from greater exposure middle-income economies. The improvement in job to trade. quality also included transitions toward both more A second concern has to do with the positive salaried—presumably more formal—employment effects from exposure to trade becoming weaker and more fulfilling work occupations. after the global financial crisis of 2007. Most of the Seen this way, it is evident that trade has been analyses for this report cover this period, and few good for workers in developing countries. Such is show a significant shift in results around that time. the first key message from this report. However, the association between export volumes and employment levels does become insignificant At the same time, the analyses for this report also afterward. provide support for some of the concerns raised in recent years. Such concerns should not be Because of these two nonnegligible concerns, the ignored—if nothing else, because doing so could second message from this report is that integrating damage social cohesion and encourage populist in international markets alone may not be enough. policy responses that could be even more harmful. Trade policy on its own has limitations. To generate more and better jobs, developing countries—and A first concern is about low-income countries. especially low-income countries—may need to rely Unlike middle-income countries, exposure to on broader development strategies, in addition to trade in their case does not seem to create large exposure to trade. Indeed, complementary policies numbers of jobs, or to reduce inequality in labor are needed across countries at all development earnings significantly. Further, as they integrate levels (Shepherd and Winkler 2023). in international markets, labor productivity unambiguously increases. However, the effect There is no one-size-fits-all approach in this respect. on average labor earnings is insignificant. Skill upgrading may help move a country upstream For quite some time, the composition of their when participating in global value chains. It may exports is driven by sectoral specialization— also allow for tapping the growing opportunities mainly commodity-based, with a low share of for trade in services provided by rapid digitization. labor-intensive manufacturing—more than by Spatial policies may help domestic market occupational upgrade. integration, connecting less-developed areas to the world in a context of limited labor mobility. In This does not mean that the effects from exposure addition, improving the business climate—which to trade are negative for them—they are not. includes reducing corruption—is needed for the However, the positive effects are probably private sector to transform trade opportunities dampened by the very large supply of unskilled— into new investments and job creation (Shepherd and often informal—workers. In such a context, and Winkler 2023). Complementary policies are increases in labor demand due to higher trade needed at the international level too. exposure induces labor movement from informal to formal employment rather than increasing overall Why exposure to trade has become less conducive employment levels. In addition, commodity-based to more and better jobs after the global financial exports tend to be more capital-intensive, even crisis is unclear. This shift may be linked to within manufacturing (such as petrochemicals, the increased capital and technology intensity minerals, and metals), thereby resulting in lower of production during the more recent period employment gains. These caveats suggest that in (Hallward-Driemeier and Nayyar 2017), especially LEVERAGING TRADE FOR MORE AND BETTER JOBS 29 Prosperity Insight within global value chains (Rodrik 2018), thus It took two generations for the international raising barriers, particularly for low-skilled labor. community to painstakingly build such architecture Another explanation may be the offshoring of tasks after World War II. Developing countries benefited from high-income, but also emerging economies, enormously from it, among other things, by to lower-cost locations. creating more and better jobs, which in turn led to unprecedented poverty reduction. Last, but not least, the global architecture supporting international trade is increasingly The third message from this report concerns the under stress. Geopolitical tensions and security need to protect—and even strengthen—the global concerns are leading to new trade barriers, thus rules-based system that has created so many eroding a rules-based system, and making dispute opportunities for workers in developing countries. mechanisms ineffective. LEVERAGING TRADE FOR MORE AND BETTER JOBS 30 Prosperity Insight Annex A: Background Studies The analyses and findings in this report are based on six background studies: Aguilar Luna and Winkler (2024). This study examines the relationship between trade and job quality, using productivity and wage rate data for export and non-export activities in a sample of 60 countries and 45 sectors over 1995–2019. The data are further explored by decomposing productivity and wage rate growth into the respective within and between components. Kruse and others (2023). This study explores how the shares of different kinds of activities in total exports evolve with the level of development. Data are from 52 countries, with the combination of 13 occupational classes with 35 sectors, yielding 455 distinct activities. Individual country trajectories expose the diversity of activity transitions. Lewandowski, Madoń, and Winkler (2023). This study describes the relationship between participation in global value chains, worker routine task intensity, and within-country wage inequality. It uses unique survey data from 38 countries concerning routine task intensity, which is combined with sectoral measures of backward and forward participation in global value chains. Rocha and Winkler (2019). This study assesses whether trading firms employ more women than non-trading firms. Data are for more than 29,000 manufacturing firms in the World Bank Enterprise Surveys of 64 developing and emerging countries. The analysis controls for firm output, capital intensity, total factor productivity, and fixed effects. Vazquez and Winkler (2023). This study assesses the local labor market links for trade with employment, income, migration, and informality. It uses matched information on exports and imports from customs with labor market indicators for around 2,000 Mexican municipalities over 2004–2014. The analysis uses the initial structure of trade and trends in global trade with the United States as instruments. Winkler and others (2023). This study revisits the linkages between trade and jobs, focusing on employment, labor incomes, and job activities. Data are from a large sample of countries and sectors over 1995–2018. The estimation relies on instrumental variable regressions and new input-output measures of jobs and activities in exports. The replicability package for the charts of this report can be found here. The World Bank Activities in Exports Database is available here. LEVERAGING TRADE FOR MORE AND BETTER JOBS 31 Prosperity Insight Endnotes 1 In this context, there are useful, readily available sources to consider. Among them are the databases maintained by the International Labour Organization (ILO) and the Organisation for Economic Co-operation and Development (OECD). However, these sources tend to report highly aggregated data, thus somewhat limiting their usefulness. 2 A more granular data source is the ILO’s October Inquiry, a survey of labor earnings by occupation conducted almost continually since 1924. The labor earnings reported in it are defined in diverse ways. Nonetheless, a recalibration assuming a stable relationship between indicators yielded a workable database from 1983 onward, supporting analyses like those in this report (Oostendorp 2012; Rama 2003). However, this source does not cover other labor market outcomes. In addition, the recalibrated data are only from the prosperous period predating the more recent concerns about adverse impacts from trade, which started to be voiced after the global financial crisis of 2007. 3 Building on Rodríguez-Castelán, Vazquez, and Winkler (2020). LEVERAGING TRADE FOR MORE AND BETTER JOBS 32 Prosperity Insight References Acemoğlu, Daron, and Pascual Restrepo. 2020. “Robots and Jobs: Evidence from US Labor Markets.” Journal of Political Economy 128 (6): 2188–2244. Aguilar Luna, Luis, and Deborah Winkler. 2024. “Linking Export Activities to Productivity and Wage Rate Growth.” Policy Research Working Paper 10737, World Bank, Washington, DC. Aitken, Brian J., and Ann E. Harrison. 1999. “Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela.” American Economic Review 89 (3): 605–618. Alfaro-Ureña, Alonso, Isabela Manelici, and Jose P. 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