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Trade Can Also Create Jobs—With Supportive Policies For Workers

04.08.2017 Isabel Udal Perucho
Trade Can Also Create Jobs—With Supportive Policies For Workers

In May, Robert Azevedo, Director General of the World Trade Organization, defended trade liberalization in Japan against an increasingly common argument that trade destroys jobs. The Nikkei Asian Review reported his statement that “many jobs have been lost, and people sometimes tend to believe trade is the cause of that.”“In fact,” he said, “it isn’t.” 

We agree, though it has been a rough few years for open trade and globalisation. Perceived as the reasons behind job displacement and the loss of working-class livelihoods, trade has become a convenient scapegoats by likes of many ‘Leave’ advocates, campaigners for “Make America Great Again,” and Eurosceptics who propose protectionism as an alternative solution to national woes.

Yet, all hope for fair and free trade is not lost. The OECD’s 2017 Employment Outlook Report, released on June 13, 2017, shows support and evidence for steady improvements in employment numbers even in the context of trade. Extended to the long-term view of ten years after the recession, unemployment rates are projected to match pre-recession rates, while the employed share of the working population is said to exceed that of the pre-recession era.

Trade does not just destroy jobs. It also creates jobs.

Trade works best though when national governments have complimentary policies in place to help support workers. This may include labor market institutions that protect workers’ welfare and builds skills to help them adapt to changing demands. Workers can find better employment opportunities in a competitive landscape coming from the dynamic global economy.

If we understand the relationship between trade and labor, the OECD’s projections make sense. As trade facilitates interaction between local and foreign businesses, companies need to find ways to increase productivity to stay competitive. This may be possible by concurrent advances in technology, making transactions easier while enabling an infinite amount of entrepreneurial possibilities for products and services that have yet to exist.

Businesses will need to complete new kinds of tasks - be it engineering a new step in the production process or optimizing the use of new technologies - and need new skills to successfully fulfill them. People step in and use their skills to fulfill these demands.

Trade and technology thus create business opportunities that create jobs. This other side of the trade-labor dynamic helps drive the job market recovery predicted by the OECD. That economies within and beyond the OECD are still willing to develop multilateral trade agreements such as TPP-11 and RCEP signals an optimism about trade, technology, and job markets, and a willingness to act upon it.

However, businesses can only take advantage of these benefits if the necessary capital and labor are available to their disposal. Not all economies have similar capabilities. Not all firms will be able to compete. Some businesses thus are unable to capitalize on advances in technology. Some workers do not have the resources to learn the required skills or the technological literacy to cope with adjustment costs: one of the biggest challenges to job markets is the automation of simple tasks, as jobs are displaced if machines can do the work instead.

Azevedo admits that though only two out of 10 job losses are caused by trade, “the other eight are lost due to new technologies, higher productivity and innovation.”

This is valid reason for concern. Though the OECD projects improvements in unemployment rates, it also projects increasing job polarisation - the displacement of middle-skill jobs to high- and low-skill jobs - and de-industrialisation - the displacement of jobs from manufacturing to services. According to the OECD report, the diffusion of information and communication technology (ICT) significantly increases job polarization within manufacturing sectors, displacing mid-skilled labor jobs with high-skilled labor jobs.

Furthermore, these displacements are not compensated by improvements in wage differences: wage gaps between middle skill-to-high skill workers and middle skill-to-low skill workers are generally increasing. The distribution of benefits is thus uneven.

These changes in the labor markets are coming even if trade from foreign markets were stopped tomorrow.

While trade does create jobs, it does not automatically do so, nor does it do so for everyone.

Yet the OECD notes that many of the worst effects of labor market adjustments can be prevented or mitigated with the right worker protections and skills-building, governments can help workers adjust to new business and technology contexts.

The OECD finds that such protections significantly affect the impact of technology on job polarisation in manufacturing. For example, overly strict regulation of terms of a worker's employment (employment protection legislation) increases administrative costs to terminate and hire workers, and the inability to adapt to new technologies and business models increases displacement of mid-skill jobs to low-skill jobs (European Commission, 2015). Conversely, factors that improve protection of workers’ rights in the face of economic change, such as high union density, significantly reduces the rate of this displacement.

With these protections, new and relevant approaches to education prepare workers with skills to fulfill jobs increasingly in demand. Jobs either in demand or at lower risks of automation usually hold higher qualifications and skillsets than those in high-automation-risk jobs. The OECD’s 2017 Report finds that high-risk jobs largely involve basic information exchange, simple transactions, and simple manual tasks, and are performed by those with secondary education qualification or less. Low-risk jobs largely involve creative tasks and interpersonal relationship management, and are conversely held by those with at least a tertiary education.

Labor rules and regulations matter, and so does an education that empowers students with creativity and the social savvy to capitalize on the opportunities of the evolving economic world. While an “open market is essential to promote economic development and job creation,” Azevedo advises that education has to “improve the level of skills in the labor force” to benefit from it.

Trade and technology do create business and job opportunities. The risks to job markets can be averted. The promises of open trade can be realized through continued support of the working force that helps them get employed, protects labor standards, and invests in high-quality education to build innovativeness and adaptability.

Indeed, fair and free trade can benefit workers. The solution lies not in closed markets. The solution lies in helping workers thrive on the brimming possibilities of our advancing and globalizing economy.

 

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