Trade‐related Job Loss,Wage Insurance and Externalities: An Ex Ante Efficiency Rationale for Wage Insurance

The extension of adjustment assistance to those who have suffered trade‐related job displacement is widely supported on both sides of the economics of globalisation debate. The form that such assistance should take, namely wage insurance, is also the subject of wide agreement. Nevertheless, the formal economic rationales offered for such a policy are varied, including political economy arguments, equity arguments and market failure/ex post efficiency arguments. This note proposes an ex ante efficiency‐based rationale for the provision of adjustment assistance in the specific form of wage insurance. Job displacement imposes pecuniary externalities on displaced workers, which, in a complete markets setting, induce only shifts along the ex ante Pareto‐efficient frontier. However, when markets are incomplete, pecuniary externalities become welfare‐relevant. Without the possibility of diversifying or hedging the risk of pecuniary external diseconomies of job displacement using contingent claims, welfare is reduced ex ante. Wage insurance – whether publicly underwritten, privately underwritten (as in Shiller's (2003 ) ‘livelihood insurance’), or supplied on a mixed public/private basis – completes the market for contingent claims, allowing workers to diversify or hedge the risk of trade‐related pecuniary external diseconomies. By facilitating risk sharing, wage insurance removes an impediment to ex ante Pareto efficiency. Moreover, wage insurance affects not only post‐displacement behaviour by increasing the incentive to reacquire employment quickly, but it also affects pre‐displacement consumption and investment behaviour, in particular, lowering the threshold at which workers will be willing to undertake irreversible investment in industry‐specific skills.     

Trade, offshoring, and the invisible handshake

We study the effect of globalization on the volatility of wages and worker welfare in a model in which risk is allocated through long-run employment relationships (the ‘invisible handshake’). Globalization can take two forms: international integration of commodity markets (i.e., free trade) and international integration of factor markets (i.e., offshoring). In a two-country, two-good, two-factor model we show that free trade and offshoring have opposite effects on rich-country workers. Free trade hurts rich-country workers, while reducing the volatility of their wages; by contrast, offshoring benefits them, while raising the volatility of their wages. We thus formalize, but also sharply circumscribe, a common critique of globalization.     

The Effects of Globalisation on the US Labour Mark'et: Service Sectors Considered

How has globalisation affected employment and wages in the United States? Existing studies largely ignore the intersector labour movement between the manufacturing and service sectors by focusing only on the intrasector movement within the manufacturing sector. However, by decomposing the aggregate labour demand in the United States, we find that the intersector movement is more substantial than intrasector movement. Motivated by the decomposition results, this study presents a three‐sector model that includes a manufacturing sector and two service sectors at varying skill intensities. The model shows that offshoring might translate into smaller‐than‐expected wage changes because of the intersector labour movement. In line with the theoretical predictions, two notable empirical results are presented. First, an occupation's exposure to offshoring has non‐significant, albeit negative, effects on wages. Second, the more an occupation is exposed to offshoring, the lower its employment in the manufacturing sector as a share of its total employment. Furthermore, these effects are larger for more routine occupations or those requiring less education.     

Offshoring and the Skill‐premium: Evidence from Individual Workers’ Data

During the 1980s the United States has experienced an increase in both international trade and the skill‐premium. The association between these two phenomena has proven elusive in the early empirical literature on the subject. Indeed, the consensus among labour economists seems to be that trade has not been the main cause of such increase in the skill‐premium. This view has been challenged by Feenstra and Hanson (1999, Quarterly Journal of Economics, 114, 3, 907) who find that offshoring sizably affects the skill‐premium. I revisit this debate using individual workers’ data from the March Current Population Survey combined with industry‐level trade data. This strategy improves upon the work of Feenstra and Hanson who do not control for the demographic characteristics of the labour force. In my results, offshoring can explain between 9 and 30 per cent of the increase in the college wage premium, relative to high‐school workers. In addition, I find that offshoring can explain 21 per cent of the increase in the relative employment of skilled labour. These results suggest that offshoring may play an important role in the increase in the relative demand of skilled workers.     

Mid-life and older workers: job displacement and health care coverage

The purpose of this study was to explore factors influencing the likelihood that workers would have health care coverage following job displacement. The sample was drawn from the Current Population Survey: Displaced Worker Supplement (January 1988) and consisted of 840 workers aged 45 years and older. The workers lost jobs because of plant closings, relocations or because of slack work At the time of the survey, 567 displaced workers indicated that they had health care coverage. Logistic analysis revealed that prior health care coverage, new earnings of males and family incomes of $20,000 or more impacted the likelihood that these displaced workers would have health care coverage. However, workers subsequently re-employed in new jobs (over 35 hours a week) were less likely to have health care coverage.     

Do All Foreign Direct Investment Inflows Benefit the Local Economy?

The present study measures the impact of FDI inflows on the local economies of the US states that receive most of the FDI inflows in the country. It appears that FDI inflows in manufacturing have rather weak effects on local employment and wages in most of the states in the sample. However, these results are primarily due to the industry composition of the FDI. FDI inflows in Printing and Publishing, Transportation Equipment and Instruments have positive effects on local employment and wages, while FDI inflows in Leather and Stone/Clay/Glass have detrimental effects on local labour markets in most of the states in the sample. These findings indicate the importance of industry characteristics in evaluating the effects of FDI inflows on local communities. Also, they emphasise the need for US states to selectively target and attract FDI inflows in specific industries.     

Outsourcing and the US Labour Market

There is worldwide concern about the vulnerability of the current labour force to displacement by future imported services. In the USA, some have suggested that as much as one‐third of the workforce might be vulnerable to such outsourcing. However, the labour market impacts of this displacement are difficult to assess using purely analytical or statistical approaches. In this paper, simulation methods are used to understand how sensitive the US economy and labour market are to increases in services imports. Specifically, the scenario examined assumes that the share of imported services in total employment increases from 0.8 per cent to 7.25 per cent over a time horizon in which workers are unable to change occupations. In response, it is found that all industries increase their use of imported services and their use of the composite input that is comprised of imported services and tradable labour. With the exception of legal workers, all workers in tradable occupations experience declines in their real wages. Demand for non‐tradable occupations labour rises in the industries that expand the most, while demand falls in shrinking industries. The non‐tradable occupations that are used intensively in the shrinking industries experience declines in real wages, while the real wages rise for workers in non‐tradable occupations used intensively in the expanding industries.     

Cheap Imports and the Loss of US Manufacturing Jobs

This study examines the role of international trade and specifically imports from low‐wage countries, in determining patterns of job loss in U.S. manufacturing industries between 1992 and 2007. Motivated by intuitions from factor‐proportions‐inspired work on offshoring and heterogeneous firms in trade, we build industry‐level measures of import competition. Combining worker data from the Longitudinal Employer‐Household Dynamics data set, detailed establishment information from the Census of Manufactures and transaction‐level trade data, we find that rising import competition from China and other developing economies increases the likelihood of job loss among manufacturing workers with less than a high school degree; it is not significantly related to job losses for workers with at least a college degree.     

The role of perceived workplace development opportunities in enhancing individual employability

This paper explores the effects on workers’ employability of workplace development opportunities during employment as perceived by the workers themselves. Data was collected through a survey conducted in 2012 in Italy using a sample of 558 workers. The aim was to test the effects of participation in training courses, workplace learning opportunities and career development support on career development in 2013. Results show that the main predictors of subjective career success are related to the career development support provided by supervisors, including mentoring and career counselling, and workplace learning opportunities provided through processes of job enrichment, job enlargement and job rotation. By contrast, participation in training courses does not bring any significant effects. The study also reveals that employees’ opportunities for increasing their employability in the workplace depend on a number of personal and occupational characteristics. The study reaches the conclusion that firms can play a significant role in enhancing the career success of an individual and that employability can been encouraged by a mix of on‐the‐job workplace development opportunities.     

Offshore Outsourcing and Non‐production Workers: Firm‐level Relationships Disaggregated by Skills and Suppliers

In analysing the impact of offshoring on the skill composition, previous empirical studies have established that offshoring firms employ more non‐production workers. However, not all non‐production workers are highly skilled. This paper disaggregates non‐production workers into the following three categories: (i) skilled non‐production workers, (ii) unskilled non‐production workers and (iii) non‐production workers with special skills for offshoring and other overseas business management. By linking our offshoring survey data with firm‐level data for Japanese manufacturing firms, this paper finds that the share of skilled non‐production workers tends to be significantly high in offshoring firms but that of unskilled non‐production workers is not. As offshoring has expanded from production to non‐production tasks, this result implies that the distinction between skilled versus unskilled workers becomes critical among non‐production workers. Using our unique data on supplier types in offshoring, this paper finds that the share of non‐production workers for the management of overseas activities tends to be high in foreign direct investment firms and in firms outsourcing to foreign independent suppliers, but not in Japanese firms outsourcing to offshore suppliers located abroad but owned by other Japanese firms. This difference indicates that coordination burdens are likely to be at least partly mitigated by common languages or shared business practices. These findings suggest that offshoring has different impacts on employment depending on suppliers and the worker’s skill. The principal results are confirmed robust even after various firm characteristics are controlled for in panel regressions, though we should not give any causal interpretations.     

The role of employees for post-entry firm growth

While the majority of existing studies on the determinants of post-entry firm growth focus on the role of the founders or on the impact of firm-specific characteristics, possible effects of the characteristics of a start-up’s workforce have been widely neglected to date. In this paper we examine the role of initial worker and job characteristics (e.g., qualification, age, workload, marginal employment) of start-ups for their post‐entry employment growth. The analyses are based upon a capacious panel dataset comprising a representative 50 % sample of establishments in Germany. Our empirical results show that, inter alia, high-skilled and young workers are conducive to growth in terms of both the number of employees and full-time equivalents. With respect to flexible work forms, however, establishments using part-time employment show higher post‐entry growth only in terms of total hours worked, but a significantly lower growth with respect to the number of employees.     

An international perspective: factors that affect female midlife and older displaced workers' re-employment earnings

Workers affected by structural unemployment are often referred to as displaced workers. This study compares factors that affect re-employment earnings of male and female displaced workers. The study focuses on midlife and older workers and is derived from the US 1988 Current Population Survey: Displaced Worker Supplement. Findings indicate that women's re-employment earnings are largely affected by their human capital investment education. Men, on the other hand, have numerous factors that increase re-employment earnings. As the economies of the U.S. and the European communities adapt to changes in technology and global competition, worker displacements will continue to be an important issue.     

Trade in High-Tech Services

This paper examines the size, scope, and potential implications of trade in high-tech services in the U.S. The results suggest that many service activities are tradable, tradable service activities tend to employ more educated workers and pay higher wages, and high-tech services account for a large share of service activities that are tradable. Service exporters are more prevalent in high-tech industries with larger establishments and higher wages. Within industries, service exporters tend to be larger, pay higher wages, and are more productive. Tradable service activities seem consistent with U.S. comparative advantage and, as a result, less likely to be vulnerable to offshoring. Consistent with this, recent employment growth in tradable service industries is not significantly different than employment growth in non-tradable service industries.     

Evaluating the foreign ownership wage premium using a difference-in-differences matching approach

This paper seeks to identify the causal effect of foreign acquisitions on wages of skilled and unskilled workers, using difference-in-differences propensity score matching estimators. Our results suggest that there is substantial heterogeneity in the post-acquisition wage effect depending on the nationality of the foreign acquirer and the skill group of workers. We find sizable post acquisition wage effects on skilled and unskilled wages following an acquisition by a US firm. No such impacts result from acquisitions by EU multinationals. Also we discern some positive wage effects for unskilled workers resulting from acquisitions by multinationals from the rest of the world.     

The Causes and Consequences of Sectoral Reallocation: Evidence from the Early 21st Century

A number of industries underwent large and permanent reductions in employment growth at the beginning of this decade. We investigate the sources of these permanent changes in employment growth and what the consequences were for the U.S. economy. In particular, we find that relative declines in demand rather than technological innovations were the key drivers of the elevated levels of job destruction and permanent layoffs in the affected industries. In addition, most workers that were displaced in downsizing industries relocated to other sectors. While this process of reallocation led to large increases in productivity (and a reduction in labor's share of aggregate income) in industries shedding workers, it also resulted in prolonged periods of unemployment for many displaced workers, along with sizable reductions in earnings that were consistent with substantial losses in their specific human capital. Putting these pieces together, we estimate the costs to those adversely affected by these events to have been 1/2 percent to 1 percent of aggregate income per year.     

Short‐term Consequences of Trade Reform for Industry Employment and Wages: Survey of Evidence from Colombia

Recent research has focused on the short‐ to medium‐term implications of trade reforms for the labour market outcomes and poverty in poor economies. This article summarises the evidence on the short‐term consequences of the Colombian trade reform initiated in 1985 for industry employment and industry wages. Although the reform reduced manufacturing tariffs on average by 40 percentage points from 1984 to 1994, tariff declines were not significantly associated with labour reallocation across sectors. The reform, however, was associated with bigger declines in relative industry wages in sectors that experienced bigger tariff cuts. This evidence is in line with the predictions of short‐ to medium‐run models of trade in which labour is not mobile across sectors. It is also consistent with the predictions of models where imperfectly competitive industries share rents with workers and trade reduces the firms’ profit margins and thus workers’ rents.     

Offshoring,Plant Survival and Employment Growth

This paper empirically investigates the effects of offshoring on plant survival and employment growth using data on the Danish manufacturing plants during the period 1995–2006. To control for the potential endogeneity of the offshoring decision, the paper uses instrumental variables and propensity score‐matching approaches. The data allow me to control for the heterogeneity between the units by using firm‐level offshoring activities in different regions and performing the empirical analysis on plantlevel aggregation, which is shown to be of crucial importance. Using firm as a unit of observation, the effect of offshoring is, if any, very small. However, using plant as a unit of observation, there are strong indications that offshoring plays a much larger role for the extensive and intensive margin of adjustments. The results reveal that plants survival prospect is higher if the main offshoring is located in high‐wage countries; lower if it is located in low‐wage countries; and not affected if it is located in medium‐wage countries. Finally, the results also reveal that depending on where the main offshoring is located, the growth rate of low‐skilled employment is 2 to 8 per cent lower in plants of offshoring firms.     

Mindestlohn in Deutschland,Großbritannien und in den USA

In Germany, there is an ongoing debate on whether the new statutory minimum wage has had negative employment effects. First evaluation results point at a fairly modest job loss. However, long-run effects are difficult to estimate. While the German minimum wage might be adjusted by an economically sound growth rate, minimum wages in Great Britain and some US states have been increased beyond the level that existing evidence would suggest is necessary.     

Is self-employment really a bad experience? : The effects of previous self-employment on subsequent wage-employment wages

We use propensity score matching methods to quantify the effects of past self-employment experience on subsequent earnings in dependent employment using data on the population of Danish men observed between 1990 and 1996. Our results generally confirm existing studies in that we find that a spell of self-employment is associated with lower hourly wages compared to workers who were consecutively wage-employed. We also show, however, that this effect disappears—and even becomes positive in some settings—for formerly self-employed who find dependent employment in the same sector as their self-employment sector. Hence, the on average negative effect of self-employment is rather caused by sector switching than by the self-employment experience per se. Moreover, formerly self-employed who either enjoyed a high income or hired at least one worker during their self-employment spell receive wages in subsequent dependent employment that are at least as high as for individuals who have been consecutively wage-employed.     

Labour market institutions,learning and self-employment

We develop a dynamic partial-equilibrium model to analyse how labour market institutions (wage compression, minimum wages, unemployment benefits, mobility costs and fixed-costs of self-employment) and learning affect who and when people become self-employed. We find that certain ability groups of workers become self-employed for both “carrot” and “stick” reasons: Some prefer self-employment to the low institutionalised wage, while others are not productive enough to qualify for a job at the institutionalised wage. Furthermore, wage compression and learning may give rise to a class of switchers who start in wage employment and later switch to self-employment. Several predictions of the model are consistent with observed empirical regularities, such as the existence of a group of low-skilled self-employed workers, the increasing propensity for self-employment over age groups and the larger spread in earnings among self-employed.