Six ways trade affects jobs

Imports and foreign trade can raise the temperature in communities as posing a threat to local businesses and jobs. But a new report from the OECD confirms that trade actually plays a powerful role in contributing to rising incomes and creating jobs.

Photo: Lawrence Migdale

The key is having supportive government policies in place. “Countries where trade openness has failed to provide a growth stimulus commonly have unstable macroeconomic policies, inadequate property rights, a dearth of public investment in overcoming supply-side constraints, or other socio-political constraints,” says the report by the International Collaborative Initiative on Trade and Employment (ICITE), which presents highlights of two years of ongoing research.

Among some of the key findings about the relationship between trade and jobs:

1. Trade increases income through productivity growth. Importing creates competition that forces domestic firms to become more efficient. That means investing in modern technologies and worker training, which has the effect of shifting dollars and resources into areas with higher productivity. Businesses typically pay higher wages to higher-skilled workers, thus raising incomes.

2. Periods of high unemployment can result when the gains in jobs in exporting sectors lag or do not fully compensate for job losses in import sectors seeing increased competition. But policies that support flexible movement of capital and labor into the new sectors can minimize these costs.

3. Trade in services has had positive effects on job creation and wages in developing countries – and only minor effects in labor markets of high-income countries.

4. There is little evidence that trade has played a major role in increasing income inequality in either developed or emerging markets. An exception to this may be discoveries of natural resources that create sudden new wealth captured by elites.

5. Trade does not undermine working conditions in developing countries. Indeed, trade contributes to better working conditions through FDI and labor standards, or as a result of growth.

6. Trade-led growth requires reallocation of resources, with some workers benefiting through higher wages and some workers left behind. While most studies indicate these costs are small for the community as a whole, they deserve the attention of policymakers.