International trade allows manufacturers and distributors to seek out products and services produced in foreign countries. Companies acquire them because of cost advantages or in order to learn about advanced technical methods used abroad, for example, methods that help reduce the cost of production, lower prices, and in turn, induce more consumption, thus producing increased profit. Trade also enables firms to acquire resources that are not available at home. Besides providing consumers with a variety of goods and services, international trade increases incomes and employment. In 2012, the number of U.S. jobs supported by exports ($2.2 trillion) to all foreign markets reached 9.8 million. Many studies show the positive role of international trade in raising employment and wages.
- Case studies reviewing the experience of the twelve most rapidly growing countries over the past sixty years shows the important contribution of trade in raising employment and incomes (OECD, 2012).
- A survey of 3,032 small and medium-size manufacturing enterprises in Canada over a three-year period (1994-1997) strongly indicates that growth in exports is associated with an increase in jobs (Lefebvre and Lefebvre, 2000).
Even though imports are associated with loss of jobs due to plant closings or production cutbacks of domestic industries, the export-job-generation effect is about 7.5 percent larger than the import-job-loss effect (Belous and Wyckoff, 1987). Most occupations show a net job gain from an equal amount of exports and imports except for blue-collar occupations, which are shrinking in most developed countries due to increasing pressure from low-wage imports.
Exports create high-wage employment. Exporters in the United States, for example, on average pay wages that are some 6 percent higher than nonexporters (Bernard, Jensen, Redding, and Schott, 2007). Imports are also found to have a strong positive effect on wages through their positive effects on productivity. A study led by the Organization for Economic Cooperation and Development (OECD) that looked at a broad sample of countries (1970-2000) shows that workers in the manufacturing sector in open economies benefited from pay rates that were between three and nine times greater than those in closed economies (depending on the region) (Flanagan and Khor, 2012). Another study on wages and trade also finds a strong positive correlation between export intensity and wages. This could be partly explained by the fact that export-intensive sectors tend to show higher levels of productivity than other sectors. It is also consistent with economic theory, which states that industries in which a nation enjoys comparative advantage are likely to be those where workers are more productive and therefore receive higher wages. It also shows that greater import penetration is associated with greater demand elasticity, which reduces workers’ bargaining power (Harless, 2006).
Source: Seyoum Belay (2014), Export-import theory, practices, and procedures, Routledge; 3rd edition.
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