What Creates Jobs in Global Supply Chains?

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1 Christian Viegelahn (with Stefan Kühn) Research Department, International Labour Organization (ILO)* Employment Effects of Services Trade Reform Council on Economic Policies (CEP) November 25, 2015 *All views expressed in this presentation are those of the authors and do not reflect the views of the ILO.

2 Background (I) Different institutions and researchers have recently been coming up with estimates of jobs related to: Literature: global supply chains (GSCs) global value chains (GVCs) final/intermediate exports final demand for goods/services of a particular sector European Commission (2015) Kizu, Kühn and Viegelahn (Forthcoming); ILO (2015) Jiang (2013), Jiang and Milberg (2013) Lopez-Gonzales (Forthcoming); OECD, WTO and UNCTAD (2013); OECD, WTO and World Bank (2014) Timmer, Los and de Vries (2015)

3 Background (II) What are GSCs? [...]demand-supply relationships that arise from the fragmentation of production across borders, where different tasks of a production process are performed in two or more countries (ILO, 2015; p. 131) Which jobs are counted as GSC-related jobs? GSC-related jobs := Jobs in a particular country that are linked to exports to a particular export destination This includes: Jobs in a particular country that depend on that country s exports to a particular export destination (direct link) Jobs in a particular country that depend on other countries exports to a particular export destination (indirect link)

4 Methodology to estimate GSC-related jobs Use World Input-Output Database (WIOD) which includes data for 40 countries and 35 sectors in Steps: Derive the so-called Leontief inverse matrix that includes the output requirements in different sectors and countries needed to produce one more unit of output demanded in the destination sector and country Combine this matrix with information on labour productivity to obtain the labour requirements Specify demand vector, in our case demand in the destination country for foreign final and intermediate goods and services Calculate number of jobs required to meet demand

5 Purpose of the paper Research question: What can explain the number of jobs in a particular country that are linked to exports to a particular export destination? Do the explanatory variables differ across sectors in which jobs are located?

6 More and more workers are in GSC-related jobs Number and share of GSC-related jobs, , 40 countries

7 Most countries have seen an increase in GSC-related jobs Share of GSC-related jobs in total employment (%), 2000 and 2013

8 Many of the newly created GSC-related jobs are in services Change in the number of GSC-related jobs by broad sector (millions),

9 There is a large variation of GSC-related jobs... Country Total number of jobs in GSCs (000s) Most important export destination in terms of jobs Number of jobs in GSCs related to most important export destination (000s) Share of jobs in GSCs related to most important export destination (%) Australia 1934 China Austria 1885 Germany Belgium 2283 Germany Brazil China Bulgaria 1480 Germany Canada 4372 United States China United States Cyprus 80 Greece Czech Republic 3039 Germany Denmark 995 Germany Estonia 292 Finland Finland 885 China France 5959 Germany Germany United States Greece 582 United States Hungary 2245 Germany India United States Indonesia China Ireland 957 United States Italy 6883 Germany Notes: Data refer to 2011.

10 ...across countries and destinations Country Total number of jobs in GSCs (000s) Most important export destination in terms of jobs Number of jobs in GSCs related to most important export destination (000s) Share of jobs in GSCs related to most important export destination (%) Japan 8243 China Korea (Rep.) 8694 China Latvia 285 Germany Lithuania 512 Russia Luxembourg 256 Germany Malta 87 United Kingdom Mexico 9904 United States Netherlands 4022 Germany Poland 6097 Germany Portugal 1201 Spain Romania 3220 Germany Russia China Slovakia 1197 Germany Slovenia 424 Germany Spain 4423 France Sweden 1767 United States Taiwan (China) 5938 China Turkey 4840 Germany United Kingdom 8436 United States United States Canada Notes: Data refer to 2011.

11 Are GSC-related jobs good jobs? Estimated sectoral impact of GSC participation on labour productivity and wages (supplier perspective) Panel a: Labour productivity Panel b: Wages

12 Estimation methodology: cross-section regressions Standard OLS regression: log(job ijt ) = M N R S β m,t B m,it + γ n,t C n,jt + δ r,t D r,ijt + δ s,td s,ij + α + ɛ ijt (1) m=1 n=1 r=1 s=1 i: country where jobs are located j: export destination t: year Job ijt : number of jobs in country i linked to exports to destination j in year t B m,it : country-specific explanatory variables C n,jt : destination-specific explanatory variables D r,ijt : country-destination-specific (time-varying) explanatory variables D s,ij : country-destination-specific (non-time-varying) explanatory variable

13 Estimation methodology: panel regressions Standard OLS Fixed Effects regression: log(job ijt ) = Arellano-Bond regression: log(job ijt ) = M N R β m B m,it + γ n C n,jt + δ r D r,ijt + ɛ t + ɛ ij + ɛ ijt (2) m=1 n=1 r=1 M N R β m B m,it + γ n C n,jt + δ r D r,ijt + λ log(job ij(t 1) ) + ɛ t + ɛ ij + ɛ ijt (3) m=1 n=1 r=1 i: country where jobs are located j: export destination t: year Job ijt : number of jobs in country i linked to exports to destination j in year t B m,it : country-specific explanatory variables C n,jt : destination-specific explanatory variables D r,ijt : country-destination-specific time-varying explanatory variables

14 Data (I) Labour force (it): ILO, Trends Econometric Models GDP (PPP) (it, jt): World Bank Geographic distance (ij): GeoDist dataset (Mayer and Zignago, 2011) Common official language (ij): GeoDist dataset (Mayer and Zignago, 2011) Contiguity of borders (ij): GeoDist dataset (Mayer and Zignago, 2011) GDP growth (it, jt): IMF, World Economic Outlook Trade openness (it, jt): =(Exports+Imports)/GDP, UNCTADstat

15 Data (II) Trade agreement in force (ijt): =1 if trade ageement is in force between country and destination, ILO based on WTO RTA Information System EU (ijt): =1 if country and destination are both EU members, Information on EU membership Average applied bilateral import tariff (ijt): WITS Database, World Bank Number of antidumping measures in force (ijt): Global Antidumping Database (Bown, 2015) Quality of trade and transport infrastructure (j): index going from 1 poor to 5 excellent, Logistics Performance Index, World Bank Time to import (jt): Doing Business, World Bank Barriers to services trade (j): Services Trade Restrictions index, World Bank

16 Results: total number of GSC-related jobs, 2011 Dependent variable: Log(GSC jobs) (1) (2) (3) (4) (5) (6) Log(Labour force) (i) 1.179*** 1.152*** 1.134*** 1.144*** 1.132*** 1.133*** Log(GDP) (i) Log(GDP) (j) 0.925*** 0.970*** 0.838*** 0.975*** 0.837*** 0.802*** Trade openness (i) 0.008*** 0.008*** 0.008*** 0.008*** 0.008*** 0.008*** Trade openness (j) 0.003*** 0.003*** 0.001** 0.003*** 0.001** EU (ij) 0.877*** 0.536*** 0.503*** 0.551*** 0.503*** 0.459*** Common border (ij) 1.193*** 1.179*** 1.239*** 1.219*** 1.240*** 1.139*** Common language (ij) 0.536*** 0.601*** 0.443*** 0.491*** 0.443*** 0.430*** Geographic dist. (ij) *** *** *** *** *** *** Appl. imp. tariff (ij) *** *** *** *** *** Transport infrastr. (j) 0.428*** 0.428*** 0.427*** Time to import (j) *** No AD measures (ij) Services trade restr. (j) ** Constant Yes Yes Yes Yes Yes Yes R No country-destinations

17 Results: number of GSC-related jobs by broad sector, 2011 Dependent variable: Log(GSC jobs) (1) (2) (3) (4) (5) (6) Manu- Services Agri- Manu- Services Agrifacturing culture facturing culture Log(Labour force) (i) 1.143*** 0.877*** 2.542*** 1.096*** 0.826*** 2.474*** Log(GDP) (i) *** *** *** *** Log(GDP) (j) 0.952*** 0.925*** 0.887*** 0.883*** 0.753*** 0.857*** Trade openness (i) 0.008*** 0.008*** 0.004*** 0.008*** 0.009*** 0.003*** Trade openness (j) 0.001** 0.005*** *** EU (ij) 1.098*** 0.753*** 1.459*** 0.731*** 0.311*** 0.938*** Common border (ij) 1.245*** 1.059*** 1.678*** 1.173*** 1.020*** 1.584*** Common language (ij) 0.344*** 0.639*** 0.348*** 0.221** 0.521*** 0.298** Geographic dist. (ij) *** *** *** *** *** *** Appl. imp. tariff (ij) *** *** Transport infrastr. (j) 0.314*** 0.535*** 0.337*** No AD measures (ij) Services trade restr. (j) ** ** Constant Yes Yes Yes Yes Yes Yes R No. country-destinations

18 Results: importance of common border, Note: Coefficients are produced with a regression specified as in column 2 of the first table shown and run for each year in separately.

19 Results: importance of geographic distance, Note: Coefficients are produced with a regression specified as in column 2 of the first table shown and run for each year in separately.

20 Results: total number of GSC-related jobs Dependent variable: Log(GSC jobs) (1) (2) (3) (4) (5) (6) OLS OLS OLS AB AB AB Log(GSC jobs) (-1) (ij) 0.558*** 0.549*** 0.537*** Log(Labour force) (i) 0.783*** 0.870*** 0.905*** 0.941*** 0.860*** 0.846*** Log(GDP) (i) 0.114* 0.194*** 0.122** *** Log(GDP) (j) 1.553*** 1.623*** 1.584*** 0.869*** 0.820*** 0.870*** Trade openness (i) 0.004*** 0.004*** 0.004*** 0.002*** Trade openness (j) 0.002*** 0.001** 0.001* *** *** GDP growth (j) 0.004*** *** 0.008*** 0.008*** EU (ij) 0.090*** 0.114*** 0.124*** * 0.066* TA in force (ij) 0.217*** 0.225*** 0.236*** Appl. imp. tariff (ij) *** *** No AD measures (ij) 0.005*** *** Year FE Yes Yes Yes Yes Yes Yes Country-destination FE Yes Yes Yes Yes Yes Yes Within R Wald (Chi2) No country-destinations No observations

21 Conclusion A country s trade policy and trade-related infrastructure has an impact on GSC-related job creation elsewhere Geographic distance and contiguity of borders explain variations in GSC-related jobs across country-destination pairs, but are less important for GSC-related services jobs Common language in contrast is more important to explain GSC-related services jobs Services trade restrictiveness has an impact on both GSC-related job creation in manufacturing and services Ongoing work: Results by different types of countries and by detailed sector Distinguish between direct and indirect link Results by skill level Repeat analysis on the basis of estimates that cover more countries

22 Annex: Which jobs are counted as GSC-related jobs?

Trade and employment in a vertically specialized world

ILO Research Paper No. 5 Trade and employment in a vertically specialized world Xia Jiang* April 2013 International Labour Office * Junior Research Officer, Policy Integration Department and for further