There has been insufficient discussion of the exporting side of the trade equation argues Tim Harcourt, Chief Economist, Australian Trade Commission.

Since the Battle for Seattle in November 1999, the world has seen a wave of
anti-globalisation protests in Washington DC, Prague, Melbourne, Genoa and this
week here in Sydney. Anti-globalisation protestors have expressed concerns about
a diverse range of policy issues including the environment, world poverty,
multinational corporate strategy and trade policy. The World Trade Organisation
has been the main focus of the protests. At the same time, proponents of
globalisation and trade liberalisation have emphasised the gains in efficiency,
dynamism and economic welfare that open markets bring to citizens of both rich
and poor nations.

A key issue in the ruckus is the impact of increased trade on the labour
market. Does trade hurt or help workers in getting and keeping jobs? The
question has been debated in the economics literature chiefly as regards the
effects of imports on workers and their conditions in industrialised economies.
British development economist Adrian Wood, for example, attempted to measure the
impact of trade between North and South on the wages of unskilled workers in the
North and found an adverse impact. His findings were disputed by other
economists who argued that most trade and investment flows were between OECD
economies rather than between the OECD and developing countries and that these
OECD flows determined wages more. Also, many of these economists would regard
technology as a more important influence on the labour market than trade.

But for all the talk about imports from cheaper countries, there has been
insufficient discussion of the exporting side of the trade equation. This
is unfortunate, as the exporting sector, with its overall dynamism and knowledge
economy focus, often provides significant labour market improvements for workers
in national economies. This has certainly been the case in Australia. A recent
study by the Australian Trade Commission (Austrade) found that exporters, on
average, paid their workers 60% more than non-exporters. This remained true even
after allowing for the different types of industry involved and the different
sizes of the firms surveyed. Australian exporters were also more likely to use
collective bargaining to raise wages and productivity within the business than
non-exporters who barely paid minimum wages.

And the differences do not just concern wages. The Austrade study produced
data about a whole gamut of employment issues. For instance, exporters were
found to have a higher commitment to occupational health and safety than
non-exporters. In terms of employment status and job security, exporters
provided a higher proportion of full-time and permanent jobs in the labour
market than did non-exporters.

Much of the story is about human capital. A significant finding of the
Austrade study was the commitment of exporters to the education and training of
their workforce. Exporters were more likely than their non-exporting
counterparts to send their staff on training courses, buy them computers, form
alliances with universities and other training providers and invest in their
long-term career development. The commitment to training is also reflected in
the relative “information age” savvy of exporters and the benefits
in terms of technology and knowledge that come from competing in international
markets. This in turn helps productivity and overall business performance.

That is fine for an OECD country, you may say, but what about developing and
transition economies? The superior performance of exporting firms relative to
non-exporters has also shown up in countries like Bulgaria, Chile, and Taiwan.
In each country, the efficiency gains of exporters drive productivity
improvements that help the economy’s competitiveness while improving
labour conditions for their own workforce.

So what are the main messages from the evidence on trade and labour markets?

First, it is important to remember the exporting side of the equation, since
too much emphasis is given to the effects of imports. After all, one
country’s imports are another’s exports. Moreover, from the evidence
in this study, exporters are good employers in terms of wages, occupational
health and safety, employment status, job security and education and training.
This is important to remember when considering the impact of trade on OECD
countries as well as developing and transition economies.

Exporters may have it right. But it will take proper institutions to get the
message to non-exporters or to import-competing firms who can no longer rely on
trade protection. Education and training programmes matter, as they
assist with labour market adjustment when economies change and new industries
replace older ones. Even in the trade and wages debate, Adrian Wood does not
support a return to trade protection as a policy response but instead prefers
labour market adjustment policies including education and training for unskilled
and semi-skilled workers in the North. In short, if labour market institutions
are fair and efficient they will provide the best insurance policy against a
return to trade protectionism.

Tim Harcourt
Chief Economist
Australian Trade Commission

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