Tuesday, July 24, 2007

Globalisation, trade and job losses

Does globalisation cause job losses? What drives international trade patterns? Should workers who lose their jobs as a result of trade be compensated? How can one tell whether it was trade or technology or something completely different that casued the job loss?

This blog post provides links to 2 papers, a Washington post article and some of my papers that provide an overview of this interesting topic. H/T: Greg Mankiw. My bold.

Aid May Grow for Laid-Off Workers
As part of their campaign to soothe an anxious middle class, congressional Democrats are preparing legislation that would significantly expand federal aid to the most obvious victims of the global economy: workers whose jobs move offshore or are lost to foreign imports.

Under a Senate bill to be introduced today, computer programmers, call-center staffers and other service-sector workers who make up the vast majority of the nation's workforce would for the first time be eligible for a generous package of income, health and retraining benefits currently reserved for manufacturing workers who lose their jobs to international trade.

Democrats say the expansion of the Trade Adjustment Assistance (TAA) program would begin to reweave the social safety net for the 21st century, as advances permit more industries to take advantage of cheap foreign labor -- even for skilled, white-collar work. By providing special compensation to more of globalization's losers and retraining them for stable jobs at home, they say, an expanded program could begin to ease the resentment and insecurity arising from the new economy.

The program, established as part of the Trade Expansion Act of 1962, is the nation's primary source of aid to workers who lose their jobs to foreign competition. Laid-off manufacturing workers must demonstrate to the Labor Department that they lost their jobs because of foreign imports or a decision to shift production to a U.S. trading partner subject to a free-trade agreement.

If their applications are approved, workers can receive two years of benefits on top of state unemployment payments, which typically last six months. The benefits include income support payments, job training, job search and relocation assistance, and a tax credit that covers 65 percent of monthly health-insurance premiums. Workers over 50 who take a new job at lower pay are eligible for wage insurance, which makes up half the difference between their old salary and the new one, up to a maximum of $5,000 a year, for two years.

Last year, the Labor Department approved 1,400 petitions covering about 400,000 workers, according to a recent study by the Government Accountability Office, though fewer than 100,000 workers sought and received benefits. The agency denied 800 petitions, mainly because the workers did not produce "an article" and hence fulfill the basic definition of a manufacturing worker. Most of the denials involved two industries, the GAO said: business services such as computer programming and airport-related services such as aircraft maintenance.

All told, the changes would double spending on the program, which cost the government just under $1 billion last year.

"Frankly, TAA is a very integral part of our efforts to reduce barriers and expand trade . . . and my view is they ought to go together," said Sen. Charles E. Grassley (R-Iowa), the senior Republican on the Finance Committee.

Last week, White House spokesman Tony Fratto declined to comment on the Democratic proposals for expansion, except to question their cost and the wisdom of covering service workers. With those job losses, he said, "it becomes impossible to draw lines that show the displacement is owing to trade."

Exactly - identifing which workers are displaced as a direct result of trade is not easy - any "back to work" assistance is welcome but such help should be available to all workers. It is likely that globalisation is some form or another will have been responsible.

The NBER papers below provide more information:


"Estimating Trade Flows: Trading Partners and Trading Volumes"
NBER Working Paper No. W12927

Harvard University - Department of Economics,
National Bureau of Economic Research (NBER), Centre
for Economic Policy Research (CEPR)
Email: helpman@post.tau.ac.il
Auth-Page: http://ssrn.com/author=20293

Princeton University - Department of Economics,
Centre for Economic Policy Research (CEPR),
National Bureau of Economic Research (NBER)
Email: mmelitz@princeton.edu
Auth-Page: http://ssrn.com/author=327622

Tel Aviv University - Eitan Berglas School of
Email: yonar@post.tau.ac.il
Auth-Page: http://ssrn.com/author=80820

Full Text: http://ssrn.com/abstract=964890

ABSTRACT: We develop a simple model of international trade with heterogeneous firms that is consistent with a number of stylized features of the data. In particular, the model predicts positive as well as zero trade flows across pairs of countries, and it allows the number of exporting firms to vary across destination countries. As a result, the impact of trade frictions on trade flows can be decomposed into the intensive and extensive margins, where the former refers to the trade volume per exporter and the latter refers to the number of exporters. This model yields a generalized gravity equation that accounts for the self-selection of firms into export markets and their impact on trade volumes.
We then develop a two-stage estimation procedure that uses a selection equation into trade partners in the first stage and a trade flow equation in the second. We implement this procedure parametrically, semi-parametrically, and non-parametrically, showing that in all three cases the estimated effects of trade frictions are similar. Importantly, our method provides estimates of the intensive and extensive margins of trade. We show that traditional estimates are biased, and that most of the bias is not due to selection but rather due to the omission of the extensive margin. Moreover, the effect of the number of exporting firms varies across country pairs according to their characteristics. This variation is large, and particularly so for trade between developed and less developed countries and between pairs of less developed countries.


"Offshoring: General Equilibrium Effects on Wages, Production and Trade"
NBER Working Paper No. W12991

University of Geneva - Graduate Institute of
International Studies (HEI), Centre for Economic
Policy Research (CEPR), National Bureau of Economic
Research (NBER)
Email: baldwin1@hei.unige.ch
Auth-Page: http://ssrn.com/author=49391

London School of Economics & Political Science
(LSE) - Department of Geography and Environment,
Centre for Economic Policy Research (CEPR)
Auth-Page: http://ssrn.com/author=272352

Full Text: http://ssrn.com/abstract=975932

ABSTRACT: A simple model of offshoring, which depicts offshoring as "shadow migration," permits straightforward derivation of necessary and sufficient conditions for the effects on wages, prices, production and trade. We show that offshoring requires modification of the four classic international trade theorems, so econometricians who ignore offshoring might reject the Heckscher-Ohlin theorem when a properly specified version held in the data. We also show that offshoring is an independent source of comparative advantage and can lead to intra-industry trade in a Walrasian setting. The model is extended to allow for two-way offshoring between similar nations, and to allow for monopolistic competition.


Finally, I have written a number of papers looking specifically at trade induced adjustment and its relationship with intra-industry trade where the smooth adjustment hypothesis states that if trade changes are intra-industry in nature (changes in imports and exports within a given industry are matched) then the adjustment implciations are less severe than if trade changes are inter-industry in nature.

Intra-Industry Trade and Labour-Market Adjustment: A Reassessment Using Data on Individual Workers

Marius Brulhart, University of Lausanne
Robert J.R. Elliott, University of Birmingham
Joanne K. Lindley, University of Sheffield

We re-examine the relationship between intra-industry trade and labour reallocation, using individual-level data on manufacturing worker moves in the United Kingdom. The contribution of this analysis is twofold. First, we estimate the impact of intra-industry trade on worker moves between occupations as well as between industries. Second, we run individual-level regressions that allow us to control for worker heterogeneity. Our results suggest that intra-industry trade does have the stipulated attenuating effect on worker moves, both between occupations and between industries, but that this effect is relatively small compared to other determinants of labour reallocation.
Suggested Citation

Marius Brulhart, Robert J.R. Elliott, and Joanne K. Lindley. "Intra-Industry Trade and Labour-Market Adjustment: A Reassessment Using Data on Individual Workers" Review of World Economics 142.3 (2006): 521-545.
Available at: http://works.bepress.com/rob_elliott/9


On the Measurement of Trade-Induced Adjustment

A. K.M. Azhar, Universiti Putra, Malaysia
Robert J.R. Elliott, University of Birmingham

Globalisation and closer regional integration has led to significant increases in trade between nations that in turn impacts on existing long standing trade partnerships. A consequence of changing trade patterns is an increase in the pressure for resources to reallocate between industries and sectors. This paper provides an integrated approach to the analysis of trade induced adjustment that complements the existing literature. Adjustment pressures are documented in accordance with the theoretical underpinnings of the smooth adjustment hypothesis and satisfy a number of desirable criteria, monotonicity, consistency and country specificity. The applicability of our approach is examined using UK manufacturing data.
Suggested Citation

A. K.M. Azhar and Robert J.R. Elliott. " On the Measurement of Trade-Induced Adjustment" Review of World Economics 139.3 (2003): 419-439.
Available at: http://works.bepress.com/rob_elliott/18

Other papers can be found at:



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