Impact of international trade

Transcription

1 Impact of nternatonal trade on employment n Polsh ndustral sector Gabrela Grotkowska; Department of Macroeconomcs and Internatonal Trade Theory, Faculty of Economc Scences, Warsaw Unversty Revsed verson, July 26, Introducton Durng the last two decades, the problem of lnk between openng of economy (for nternatonal trade n partcular) and functonng and performance of the labour market has been often dscussed. It has become partcularly fashonable n hghly-developed countres when n the second part of the 1980s and the frst part of the 1990s, a sgnfcant worsenng of stuaton of low-sklled workers was observed. It was revealng tself wth fall of relatve wage (versus persons wth hgher qualfcatons) or wth growth of relatve unemployment rate. The frst phenomenon was observed usually n countres wth relatvely flexble labour market (for nstance: n USA, see: Graph 1), whle the other n countres of contnental Europe, where labour markets are regarded to be relatvely rgd. Wage rato Years Graph 1. Hgh-sklled/low-sklled workers Non-manual/Manual workers Tertary/Secondary educaton 13 and more/12 and less years of educaton 26 ekonoma 19

2 Impact of nternatonal trade on employment n Polsh ndustral sector The second half of the 1990s has brought the reversal of ths unfavourable for low-sklled persons trend, both n European and non-european OECD countres. It s probably related to adjustment process to changng structure of the world economy (labour markets, partcularly n countres of contnental Europe, react wth long lags), smaller dynamcs of growth of trade wth developng countres and actve labour market polces and enormous fnancal resources spent on polces amed at mprovng employablty of low-sklled persons 1. In the second part of 1990s and n frst years of new century n fact we observed worsenng of relatve poston of hgh-sklled persons. Stuaton of Central and Eastern European countres, that are stll n process of economc transton, s somehow dfferent 2. In ther case, not only worsenng of stuaton of low-sklled persons s observed untl nowadays, but the scale of changes s enormous n comparson to the developed countres. For nstance, both n Poland and n Czech Republc we observed a deep fall of employment rates and growth of unemployment rates, but t was partcularly severe n the case of low-educated persons. Durng sx years ( ) the dfference n employment rates of hgh- and low-educated labour force grew n Czech Republc by 12.7% and n Poland by 31.8% In the same tme, the dfference n unemployment rates doubled (rose by 91% n Poland and by 120% n Czech Republc). Problems wth comparable data make t dffcult to assess f worsenng of the poston of low sklled workers n those countres regards relatve wages as well. In Poland the only source of nformaton on wages by educaton level s PLFS. However dsadvantages of ths data source as far as wages are concerned are well known (declared wages, bas towards avodng answerng wage questons). Wth lack of other sources, we may get some approxmaton on the scale of changes n ths area wth CSO s nformaton on average gross wage by occupaton. In 1996 the rato of average wage among specalsts to the average wage of workers at elementary occupatons accounted for 1.87 for men and 1.71 for women. In 2002 the ratos accounted respectvely for 2.47 and 2.17 (source: [CSO 1997, p.155] and [CSO 2004, p. 267]). Therefore, at least for Poland, relatve worsenng of the poston of low-sklled persons on the labour market reveals tself both wth changes n employment and unemployment rates and wages. So the reasons and results of ths growng dsperson, although maybe less mportant for hghly-developed countres, are stll or even more and more mportant for countres undergong economc transton as Poland. Among potental explanatons of observed changes, partcularly n the case of hghly-developed countres, sklled-based technologcal progress, 1 Detaled analyss of effcency of polces amed at counteractng effects of openng of economes and destructon of jobs for low-sklled labour force s presented n [OECD 2005]. 2 Snce n ths part of the artcle I use manly OECD database, by countres undergong economc transton I mean Central European countres belongng to OECD,.e. Poland, Czech Republc, Hungary and Slovaka. ekonoma 19 27

3 Gabrela Grotkowska mgratons (nflow of low-sklled mmgrants) and nternatonal trade are most often dscussed. In the OECD countres, partcular attenton was gven to growng (n 1970s and 1980s) exchange wth newly ndustralzed economes of South-East Asa. All these potental reasons nfluencng labour demand, partcularly for low-sklled labour force (technologcal progress, trade) or labour supply (trade, mgratons) cause fall of equlbrum wages, and wth some barrers for fall of wages results n growth of unemployment of low-educated persons. As for countres undergong transton, structural changes, both as for consumpton and producton, are addtonal factors that change labour demand versus hgh-qualfed labour force. However n ths, as we may call t, nternal aspect of the problem, the role of trade may be sgnfcant as well. Changes n consumpton and producton structure may be drven by openng of the economy and forcng home producers to compete wth foregn frms, usually havng at ther dsposal new technologes that allow them to produce modern, hgh-qualty products. All n, t seems that t s stll worth effort to theoretcally and emprcally nvestgate problem of mpact of nternatonal trade on labour market. In ths artcle I try to shed some lght on ths problem n Polsh case. After presentng short theoretcal background and man methodologcal approaches to the problem, I present stylzed facts about changes n employment, wages and nternatonal trade n Polsh secondary sector. Then more rgorous econometrc analyss s presented. The artcle ends wth estmates of quanttatve effects of trade on employment and ts skll-structure. 2. Theoretcal background The man theory used for explanaton of lnks between trade and labour market s the neoclasscal trade theory, most often refereed to as Heckscher- -Ohln-Samuelson theory. Ths theory, apart from explanng trade pattern (each country should specalze n producton of goods, that make relatvely ntensve use of factors whch are relatvely abundant n that country) predcts also the mpact of trade lberalzaton on the factors markets. Accordng to ts predctons, the prce of mported good decreases n terms of exported good, and so does the producton level. The other outcome s that trade rewards factors whch are relatvely ntensvely used to produce goods n the exported goods sector. The real prce of factor relatvely ntensvely used n export sector wll ncrease, and the real prce of factor relatvely ntensvely used n mport competng sector wll decrease (Stolper-Samuelson theorem, Stolper, Samuelson, 1941). Changng factor prces leads also to change n technque of producton share of more expensve factor decreases n both goods. In the lght of ths theory, trade s a great explanaton for labour market performance n developed countres. These countres are relatvely abundant n hgh-sklled labour (as compared to developng countres) and they specalze n producton of goods whch make relatvely ntensve use of ths 28 ekonoma 19

4 Impact of nternatonal trade on employment n Polsh ndustral sector factor of producton. On the other hand, these countres mport goods, that make relatvely ntensve use of low-sklled labour (e.g.: textle and toy ndustres n East Asa). Accordng to HOS theory predctons ths knd of trade pattern should eventually lead to a worsenng of low-sklled labour welfare stuaton n developed countres. It s worth notng here that HOS theory s statc n ts nature and reles on strong assumptons. Perfect competton, full employment condtons and perfect nternal moblty of factors of producton assumptons may be qute problematc. But the most controverses arse when we are talkng about dentcal technologes used n both countres. Ths assumpton needs not to be true especally n the case of explanng trade between countres that are dfferent n level of development. Dfferent technologes may completely reverse trade pattern predctons, and even more, ths may reverse the mpact of trade on factors markets. Furthermore t s worth notng that Heckscher-Ohln-Samuelson theory, based on relatve factors abundance, explans trade pattern between countres dfferng n the factor endowments (nter-ndustry trade). However, as for hghly developed countres ntra-ndustry trade plays a domnant role. Theory that explans ntra-ndustry trade s manly focused on the exstence of mperfect competton and ncreasng returns to scale, and on demand sde factors specfc consumpton functon (e.g. love for varety). Ths theory does not produce any meanngful mplcatons for factors markets. The lnks between trade and changes n the labour market n case of developed countres receve strong theoretcal support, t may seem, however, that practcal sgnfcance of trade as a factor explanng worsenng of the stuaton of low-sklled labour need not to be equally strong. On the other hand, theory of nternatonal trade dstngushes between horzontal and vertcal trade dversfcaton (see: Czarny [2002]). In both cases smlar products are traded. But only n the frst case products of smlar qualty are exchanged. In the other case, products often dffer n qualty and they are not targeted at the same groups of customers (dfferent ncomes and tastes), so there may not be drect competton between these goods on the market. Presumably, products of hgher qualty contan more captal (physcal or human), so generally dffer n producton technques, whch s not the case n horzontal ntra-ndustry trade. The mpact of vertcal ntra-ndustry trade on the labour market s, however, qualtatvely smlar to ths descrbed by Stolper-Samuelson theorem. Dstngushng between vertcal and horzontal ntra-ndustry trade s of lmted use for developed countres, snce major of ther trade s located n products of smlar qualty. But ths dea can be qute useful and may be a good extenson of thnkng about trade and labour market n countres lke Poland, snce growng mportance of ntra-ndustry trade comes manly from vertcal trade dversfcaton (see: Mcha³ek, Œledzewska [2000]). ekonoma 19 29

5 Gabrela Grotkowska 3. Emprcal research: dfferent methodologcal approach The lnk between trade and labour market performance has been one of the key ssues both n trade analyses and labour market economcs. However, no unform methodologcal framework has been establshed. Among dfferent approaches to the problem, three may be already called tradtonal [Clne 1997, Haskel 2001, Katz 1999]. The frst approach uses factor content analyss. Wth cost functon, the share of each producton factor s estmated and changes n labour demand are assessed. Typcal method used n ths approach s to estmate the number of workers employed by the producton of exported goods and number of workers needed to produce domestcally the volume of mported goods. Dfference between both estmates s nterpreted as a net effect of trade for employment. Ths methodology requres nformaton on technology n all sectors (nput-output matrx). In practce t s often very dffcult to fnd good estmates of techncal coeffcents. Katz and Murphy [1992] and Sachs and Shatz [1996] usng ths methodology have stated that the mpact of trade wth low-wage countres n the OECD countres s rather small, whch may be n accordance wth expectatons f we take nto account the fact that trade wth low-wage countres equals to only 2% of GDP of OECD countres [OECD 1997, p. 112]. Methodology of factor content s sometmes crtczed for not takng nto account the fact that many of goods mported from low-wage countres are not produced n developed countres any more. Therefore the results of smple analyss underestmated the quantty of labour that s dsplaced n developed countres by the trade wth low-wage countres. Wood [1994] n hs famous work clams that estmates should take nto account labour nput of poor South, not rch North. He assumes as well that real or only expected pressure from exportng countres wll force producers n developed countres to mplement labour savng nnovatons. When Wood ntroduced those correctons, the mpact of mports from the South appeared to be ten tmes hgher than n prevous research. Leamer [1996a] states that factor content s determned by consumers preferences, technologes, producton factors supply and world market condton for each of fnal goods. Therefore f we use factor content method, we get relable results only f we compare equlbra wth the same consumers preferences, technologes and factors supply. Another problem s hgh senstvty of results for small changes n methodology. Second approach used manly by nternatonal trade economsts [Leamer 1996, Feenstra and Hanson 1999] bases on estmatng prce equatons and total factor productvty equatons (TFP) n market equlbrum (zero proft condtons). Most of methods are based on general equlbrum models (usng explct HOS theory). Accordng to ths approach labour market stuaton s a result of changes n factor prces and factor prces are determned by fnal goods prces. Therefore f t s nternatonal trade to cause a growth of wage nequaltes among dfferent groups of labour force, t must have been a result of a fall of prces of goods n producton of whch low-sklled labour 30 ekonoma 19

6 Impact of nternatonal trade on employment n Polsh ndustral sector force s ntensvely used. It appears that analyss of changes of prces of tradable goods doesn t allow us to draw any clear conclusons. Thrd method consst n estmatng parameters of regresson, where changes n employment and/or wages are explaned by changes n trade volumes and technology. In most cases such analyss conssts of decomposton of changes n employment to changes caused by domestc demand, productvty changes, exports and mports. Research from the frst half of the 1990s were usually tryng to decompose employment changes to wthn-ndustry effect and between-ndustry effect. The frst one s sad to be representng rather asymmetrc versus qualfcatons technologcal progress, and the other nternatonal trade effect. Most emprcal analyses showed that t s rather technologcal progress that s responsble for changes n labour demand, not nternatonal trade. Later research postulated takng nto account ndrect effect of trade for employment mpact through changes n technology (for nstance: Abraham and Brock [2003]). The man crtque of ths stream of research s lack of sold theoretcal background. Accordng to HOS theory, prces of fnal goods are the man determnants of factor prces. Another problem s to fnd good proxes for technologcal progress. All n, t seems that t s extremely dffcult to assess the mpact of trade on labour market. In spte of qute strong theoretcal background, most of numerous attempts to confrm ths lnk n emprcal way has led to a concluson that the role of trade n observed changes s small, f not nsgnfcant. It s not nternatonal trade that les behnd a reducton of labour demand for low- -qualfed labour force n hgh-ncome countres. Most research show that technologcal progress and mgraton are the most mportant factors. However, we should bear n mnd that t s extremely dffcult to solate nfluence of trade from other factors and technology n partcular. Fnal goods prces that are at least from theoretcal pont of vew seen as man channel of nteracton depends on many other factors. Another mportant queston s the problem of economy s level of openness. We can not be surprsed that most of research does not fnd trade to be an mportant factor nfluencng labour market stuaton snce most of research refers to U.S. economy. As the share of exports n ts GDP s lttle above 6%, and share of mports a lttle over 11%, t s not a surprsng result. We may expect dfferent results n the case of small open economes, as Belgum, Ireland, Czech Republc (wth shares of trade flows at the level of 70% 80%). Currently many authors underlne that t s a mstake to treat trade and technology as two separate factors nfluencng labour market. They are to large extent related to each other. Currently n many research, both drect and ndrect mpact of trade on labour market are taken nto account. As for USA mgratons may play an mportant role as well, partcularly mgraton of low-sklled workers. ekonoma 19 31

7 Gabrela Grotkowska 4. Polsh ndustral sector: stylzed facts on employment, wages and trade There s not much research on mpact of trade on the Polsh labour market. However, even n those few papers, dfferent methodologcal approaches are used. Most emprcal works are knd of reactons to often formulated opnons about job destructon n Poland due to foregn competton. Such opnons formulated usually by non-economsts were pronounced n debates about Polsh trade polcy, the level of ts lberalsaton and ntegraton wth the European Unon. Usually authors focus on the overall qualtatve and quanttatve effects of trade. Only few works take up the problem of trade n context of qualfcatons of labour force. An excepton s a work that uses the model by Freeman and Katz [Lwñsk, Socha, Sztanderska 2002] and analyss on relaton between educaton level and foregn trade [Greszta, Mcha³ek, Œledzewska 2001]. Some experts clam that Polsh foregn trade defct has resulted n destructon of mllon jobs and only defct n trade wth the EU of thousand jobs [Kabaj 2000]). Another studes confrmed mpact of trade on labour productvty [Faggo 2000]) and wage structure [Morawsk and Socha 2000, Newell and Socha 2002]. An mportant problem we have to face whle analyzng relaton between trade and labour market are nformaton lmtatons. Some of them are of unversal character (for nstance: problem of transton form product classfcatons used n trade statstcs to actvty classfcatons used n employment statstcs). Other are more country-specfc and regard typcally Polsh problems (for nstance: often changes n methodology by CSO). One of the key ssues s the queston of skll structure of employment. It seems that the only possble way of approxmaton s to use data on the employment of blue-collar workers (employed at manual labour postons) and whte-collar workers (employed at non-manual labour postons). Ths dvson s often used, but t s clear that t s not completely correct. It would be very nterestng to use PLFS data, where labour supply s far better characterzed (educaton level, job tenure etc.) but PLFS actvty classfcaton s very much aggregated (only 14 sectons n manufacturng ndustry). In ths artcle, smlarly to majorty of other analyses of ths knd, I try to assess the mpact of trade n ndustral goods on employment n ndustral sector (numerous analyses lmt themselves even only to manufacturng ndustry). It s a result of the fact that most of trade, at least n tradtonal form, s an exchange of ndustral goods. In 2003 exports of goods showed by Natonal Bank of Poland n balance of payments equaled to bllon PLZ, and mports bllon PLZ. Revenues from exports of servces were equal to 43.5 bllon PLZ, and expendtures for mported servced 41.4 bllon PLZ (respectvely 18% and 16% of trade n goods). Then, the share of ndustral goods n total trade accounted for 98.3% as for exports and 97.7% as for mports. So, although the share of servces n the gross value added of the economy s systemcally growng and n 2003 accounted for 72.5% (wth 3% n agrculture and 24.5% n ndustry), the share of servces n trade rest relatvely 32 ekonoma 19

8 Impact of nternatonal trade on employment n Polsh ndustral sector small [Source: CSO 2004]. Therefore concentraton only on trade n ndustral goods does not seem to omt large part of Polsh foregn exchange. On the other hand from the very begnnng we have to bear n mnd that analyses of the mpact of trade on labour market lmted only to ndustral sector refer to qute small part of labour market. Clearly the structure of GDP s reflected n structure of employment. In Poland wth stll hgh share of agrculture (16.1% of employment n 2003, year average) and wth growng share of servces (61.0%), the mportance of ndustral sector for labour market stuaton s systematcally fallng (22.9% n 2003, aganst 24.2% n 1995 and 25.2% n 1992, wthout constructon) [CSO 2004] Employment and wages n ndustral sector n last decade In the year 2003, employment n ndustral sector (mnng and quarryng, manufacturng and electrcty, gas and water supply) n Poland accounted on average for thousand persons, that consttuted 30.5% of total pad employment n economy and 20.8% of all total employment (ncludng self-employed persons). Between 1994 (the frst year when CSO used new classfcaton of economc actvty) and 2003, the average employment fell by 21.5% (durng the same perod the economy lost 17.3% of employment and 4.5% of pad employment). At the same tme, the structure of employment changed sgnfcantly: the share of persons employed as whte-collar workers rose from 21.5% n 1994 to 24.4% (growth by 13.5%) n Ths mprovement of qualfcaton structure was a lttle stronger than on average n economy, where the share of blue-collar workers fell from 57% to 51.5%. Between 1994 a 2002, the share of people wth tertary or post-secondary educaton n employment rose from 12.81% to 20.19% (by 58%), and the share of people wth educaton lower than basc vocatonal fell from 58% to 47.28% (by 18%). For ndustral sectons (sectons C, D and E accordng to PKD classfcaton) the respectve share grew from 6.48% to 11.16% (by 72%) and the other fell from 63.05% to 55.91% (by 11%), own calculatons based on PLFS 1994 and 2002, II quarter. Between 1994 and 2003 real value of producton measured wth gross value added rose n ndustry by 58.6%, and measured wth real producton sold by 66.9%. If we add nformaton on employment fall, we may notce a sgnfcant growth of labour productvty n ndustry. Changes n employment level and structure are much dfferentated among sectons (see: Graph 3). In qute a few sectons the share of blue-collar workers grew (manufacturng of food and beverages, manufacturng of textles, manufacturng of wearng apparel and furrng, manufacturng of leather and leather products, manufacturng of wood and wood products, manufacturng of electrcal machnery and apparatus, manufacturng of motor vehcle and tralers, manufacturng of other transport equpment and manufacturng of furnture). Please note, that n many of those sectons Poland s sad to have comparatve advantage or at least they are strongly export-orented. The worsenng of the relatve poston of low-sklled workers ekonoma 19 33

9 Gabrela Grotkowska was revealed wth the fall of ther relatve wage as well. In the years , average real wage (deflated wth CPI) n ndustral sector rose by 46%. Blue-collar workers wage rose by 28.7%, and whte-collar workers by 77.2%. It resulted n drastc growth of the dfference n wages dependng on the type of job. As n 1994 the wage of whte-collar worker was by 35% hgher than the wage of blue-collar worker, n 2003 by 86.3%. However, growth of wages was not that dynamc n all sectons. It was the most moderate n two groups of sectons: manufacturng of wearng apparel and furrery, manufacturng of leather and leather products, mnng of coal and manufacturng of textles, where we observed fall of employment as well (these are shrnkng sectons where the labour demand s dynamcally fallng) and n manufacturng of wood and wood products, manufacturng of rubber and rubber products and manufacturng of furnture (where employment grew). It may mean that those last sectons were boomng wth growth of the demand for fnal goods and wth low-qualfed labour supply curve elastc enough, employment grew only wth moderate wage growth. On the other hand, two or even three tmes hgher than the ndustry-wde growth of wages took place n tobacco manufacturng, manufacturng of computers, manufacturng of rado, televson and communcaton equpment, chemcals producton and manufacturng of machnery and equpment. In all those sectons, wth the excepton of computer producton, employment fell sgnfcantly. It may be a result of fast restructurng of those sectons, where the growth of productvty s accompaned wth employment reducton and growth of wages. Only manufacturng of computers faced such growth of fnal goods demand (growth of producton sold by 797% n real terms), that allowed for growth of employment (by 20.5% on average and even by 144% of whte-collar posts) wth strong growth of wages, both for blue- and whte-collar workers. On average, n the perod , the surplus of blue-collar worker s wage over whte-collar worker s wage grew by 37%. It fell only n manufacturng of coke and refned petroleum products, mnng and manufacturng of metals. Sgnfcant growth over the ndustry-wde average was recorded n motor vehcle manufacturng, manufacturng of electrcal machnery and apparatus, manufacturng of food and computer manufacturng Changes n foregn trade n ndustral products, Lterature ndcates four key factors that could be responsble for changes n qualfcaton structure of employment n ndustral sector. These are: technologcal progress favourng hgh sklls, changes n demand structure, mgratons and nternatonal trade. In Poland, t seems that three of them are of key mportance: very clear changes n demand structure (resultng from growth of the GDP per capta level, openng of the economy and changes n consumpton patterns), technologcal shocks (to large extent related to nflow of foregn nvestments) and nternatonal trade. It seems that nternatonal mgratons play the smallest role (there s some nflow of low-qualfed 34 ekonoma 19

10 Impact of nternatonal trade on employment n Polsh ndustral sector labour force form the East, but t doesn t seem to have sgnfcant mpact on the overall stuaton on the Polsh labour market). Ths analyss s lmted only to role of one of those factors nternatonal trade. In the perod openness of the Polsh economy, measured wth sum of exports and mported related to GDP, rose from 34.8% (mnmum durng the transton perod) to 58.2% (see: Graph 2). In the recent years, mport penetraton (share of mports n consumpton) grew partcularly fast. Less mportant, but sgnfcant as well, was the growth of exports share n GDP: n 2003 t was by 67% hgher than n 1992 and accounted for 25%. Dfferent sectons were openng wth dfferent pace. In the frst years, n almost all sectons a growth of both mport penetraton and export share n GDP was recorded, although the pace of changes was dfferent. In the last perod, the changes were not that homogenous. In 2003 sectons wth hghest (over 75%) level of export penetraton were: manufacturng of motor vehcles and other transport equpment, manufacturng of rado, televson and communcaton equpment and manufacturng of wearng apparel and furrery. The share of exports was scare at manufacturng of tobacco, n publshng, prntng and reproducton of recorded meda and n electrcty, gas, steam and hot water supply. The last sectons, however, are those where dynamcs of growth were the hghest. There were only two sectons where export share n producton fell: mnng of coal (n 2003 only 16.2%) and manufacturng of metal products (29.8% n 2003). Smlarly, many of mentoned-above sectons were faced wth strong foregn competton. In 2003 hghest mport penetraton was recorded n manufacturng of leather and leather products, manufacturng of wearng apparel and furrng, manufacturng of motor vehcles and other transport equpment, manufacturng of rado, televson and communcaton equpment and computers manufacturng. The scare share of mports n consumpton s characterstc for manufacturng of food products, electrcty, gas, steam and hot water supply, manufacturng of tobacco products and prntng and publshng. In the last two sectons mport penetraton sgnfcantly fell over last years (n the case of tobacco ndustry t was a fall by 50%). Sgnfcant growth of mport penetraton was recorded n producton of wearng apparel, leather and leather products, wood and wood products, metals and n mnng (where t grew from 1.5% to 53.6% [!]). Research made on the structure of the Polsh foregn trade shows that Poland has revealed comparatve advantage n producton of goods contanng a lot of low-qualfed labour and physcal captal (see: Mchael, Œledzewska 2003). It s n accordance wth predctons of neo-classcal trade theory (t seems that these are factors n whch Poland s relatvely abundant). Stll, most of our exchange has nter-ndustry character. The share of ntra-ndustry trade s growng, partcularly as for exchange wth the EU, but much of ths trade s vertcally dfferentated. Therefore the reasons for the exchange are smlar to those underlyng nter-ndustry trade. Accordng to Stolper-Samuelson theorem, we should observe n Poekonoma 19 35

11 Gabrela Grotkowska land rather postve mpact of trade on labour market stuaton of low-qualfed persons: trade should pull up ther wages and employment. Rato of the GDP (%) Total trade Imports Exports Graph 2. Openng of Polsh economy for nternatonal trade, Source: own calculatons based on [CSO 2004]. Analyss of changes n employment, wages and trade n sectons of Polsh secondary sector (durng the perod ) allows us to dvde those secton among several typologcal groups. Frst group consst of sectons that were boomng: employment grew, real wages grew more than on average. These are publshng and prntng, manufacturng of computers and offce machnery, manufacturng of pulp and paper, manufacturng of medcal, precson and optcal nstruments and manufacturng of metal products. It s characterstc that all those sectons (wth the excepton of the last one) experenced hgh growth of exports (exceedng growth of mports) and sgnfcant growth of export penetraton. The second type are these sectons that reduced employment wth fall of relatve wage (versus ndustry-wde average). Ths group ncludes such sectons as manufacturng of wearng apparel, manufacturng of leather and leather products, manufacturng of textles and mnng. In all these sectons mport penetraton grew sgnfcantly, wth dynamcs of mport penetraton exceedng dynamcs of exports penetraton. Thrd class, groupng manufacturng of wood and wood products, manufacturng of rubber and rubber products and manufacturng of furnture, s characterzed by growth of employment wth lmted growth of wages. These are sectons that experenced sgnfcant growth of exports n real terms and growth of export penetraton. What s more n all those sectons share of exports n producton s hgher than the mport penetraton. Fnally fourth group s made of sectons where we observed strong fall of employment wth Year 36 ekonoma 19

12 Impact of nternatonal trade on employment n Polsh ndustral sector (a) (b) (c) ekonoma 19 37

13 Gabrela Grotkowska (d) (e) Graph 3. Changes n employment and wages n Polsh secondary sector (a) versus changes of mports (b) and exports (c) n real terms and changes of mport penetraton (d) and export share n producton (e), Horzontal lne ndcates ndustry-wde change of employment and vertcal lne ndustry-wde change of wages. Average growth of exports n real terms accounted for 171%, and of mports 203%. Average growth of exports penetraton equals to 75%, and mport penetraton to 82%. Source: author s calculatons. 38 ekonoma 19

14 Impact of nternatonal trade on employment n Polsh ndustral sector very dynamc growth of wages. Examples of such sectons are: manufacturng of tobacco products, manufacturng of rato, televson and communcaton equpment, manufacturng of coke and refned petroleum products, manufacture of chemcal products, manufacturng of food products and beverages and manufacturng of machnery and equpment. There s no clear pattern as for foregn trade for all those sectons. 5. Impact of trade on employment n Polsh ndustral sector: some econometrc evdence After havng presented theoretcal background of the ssue, key methodologcal approaches and changes n structure of employment and wage changes n Polsh ndustry, now I wll turn to presentng results of econometrc analyss. It s based on the model of labour demand n the mperfect competton framework proposed by F. Abraham and E. Brock [Abraham, Brock 2003]. The most crucal pont of hs approach s possblty to take nto account both: ndrect and drect effects of trade (trade drven changes n productvty) Theoretcal model The model assumes mperfect competton. We analyse sngle secton representng the economy. In each of m countres, there are n dentcal frms operatng n gven sector. They use dentcal technology, therefore they are symmetrc as far as producton costs are concerned. It results n dentcal prce for a gven varety demanded by each of dentcal producers. The world consumpton of goods manufactured by gven sector equals to X and s modeled accordng to Dxt-Stgltz approach [Dxt, Stgltz 1977]. X s a producton of gven sector n country. Snce n each country n dentcal frms are operatng, we may wrte down that: X = n x, where x s the producton of each frm operatng n gven sector n the country. Let s assume that ó s the elastcty of substtuton, where σ > 0. We may then wrte down: σ ( σ 1 ) m m X= X = σ 1 σ nx = 1 = 1 where states for dfferent countres. ( ) Maxmalzaton of the utlty functon allows us to derve the followng functon of the demand for the product n the country : σ 1 σ σ ( σ 1 ) (1) X p = n x = P where p s the prce demanded by all frms n country, P= σ E P m 1 σ p = σ (2) s the ekonoma 19 39

15 Gabrela Grotkowska prce ndex n gven sector and E = p X s the world expendtures for the good produced n the sector. Therefore the reversed demand functon s gven as follows: 1 1 E X E nx p = X σ = X X σ (3) X As for supply sde of the model, we assume, that total producton costs of a typcal frm n a country consst of fxed cost (F ) and varable cost (C ). Varable costs are determned by labour costs (w ) and captal costs (r ). To facltate the analyss, let s assume that functon of varable costs s a CRS functon. Therefore, total costs (TC) can be wrtten as follows: γ where = γ ( ) 1 γ K 1 1 TC = F + C = F + K A ω γ r γ (4) γ 1 Ths expresson allows us to ntroduce to the model both technologcal progress and ncreasng returns to scale. The proft of each frm s gven by the followng equaton: π px = TC If we assume that frms are small enough not to nfluence the total level of producton n the gven sector, we may examne the equaton (3) and fnd that frms perceve elastcty of demand to be constant at the level of σ. Ifweassume that margnal cost s equal to c, frst order condton may be wrtten down as follows: 1 p 1 = c (5) σ 1 1 where c = K A ω γ r γ From the equatons (3) and (5) we may derve the equlbrum condton for producton quantty (demand quantty) of the gven sector n country : σ σ σ σ 1 σ X = c E X (6) σ 1 In order to derve a condtonal labour demand n each frm, we use Shepard s lemma to the equaton (4), what gves the followng functon of the labour demand: l = K A γ ω γ r γ x (7) Snce all frms n the sector are dentcal, total employment n the whole sector equals to L = n l : 40 ekonoma 19

16 L = K A γ ω γ r γ X (8) If we substtute the equaton (6) to equaton (8) and substtute a proper expresson for c, the equaton for labour demand n a gven sector may be gven as follows (after takng log): ln( L ) ( ) ( ) ( ) ( ( ) ) ( ) ( )( ) G σln E σ 1 ln X γ σ 1 1 ln ω 1 γ σ 1 ln( r) + ( σ 1 ) ln( A ) where ( ) ( ) ( ) ( ) ( ) = (9) G = 1 σ ln K + ln γ σln σ + σln σ 1 In the equaton (9) varable E may be nterpreted as an effect of growth of all the world expendtures for gven good on employment n the sector. Accordng to the theoretcal model, f σ > 1, ncrease n E should lead to growth of employment. Varable E s therefore measured by the level of home producton and the level of exports. In the model, growng competton for the foregn producers s hdden n the growng producton of the country j. Usng equatons (1) and (9), nfluence of growng foregn producton on employment n a gven sector of the country may be expressed as follows: dln dln Impact of nternatonal trade on employment n Polsh ndustral sector ( L ) ( X ) j ( L ) dln d ( X) PX ln j j = = ( ) σ 1 dln( X) < 0 (10) dln X E ( ) As we may see, ths mpact s negatve. What s more, the hgher the share of foregn producers n the home market, (measured wth P j X j = E), the stronger the negatve mpact on employment n the gven sector. In theoretcal model varable A measures technology. In emprcal part t s measured wth labour productvty (value added per employed, VA). If we assume that productvty (PROD) s an approxmaton of the varable A from theoretcal model, and therefore form the equaton (9) we get: ( 1ln ) ( A ) ln( PROD ) j σ = λ + ε (11) Fnally basng on the equatons (9) and (11) we may wrte down employment equaton n a gven sector 3 : ( EMPL ) α ( HOME ) ( EXP ) ( IMP ) t 0 α1 β t 1 ξ t 1 t + η1 ln( WAGE ) + ln( PROD ) + u ln = + ln + ln + ln + λ t 1 t 1 t Another aspect that s taken nto account n the model s the nfluence of trade on labour productvty. Therefore another equaton s estmated, n whch factors determnng the level of productvty are analysed: (12) 3 The model does not nclude prce of captal, whch may be approxmated wth nterest rate. However, t would be dentcal for all sectors and would vary only n tme. Snce addng dummes for each year has not nfluenced regresson results, the captal prce has been removed form the model. ekonoma 19 41

17 Gabrela Grotkowska ( ) β ( ) ξ ( ) δ ( ) φ ( ) ln PROD = ln EXP + ln IMP + ln RD + CAP + u t 2 t 2 t 2 t 1 (13) t 2 t The am of estmatng the equaton (13) s to get parameters standng by trade varables. They may be postve or negatve, dependng on the way frms react to the ncrease of foregn trade. Fxed assets have been taken nto account as well, snce usually ntroducton of new labour-savng technologes s accompaned wth ncrease of physcal captal stock. Smlarly spendng on R&D measures technologcal progress that we observe n gven sector. Addng both effects allows us to assess total nfluence of exports and mports for employment: ( EMPL ) α ( HOME ) ( EXP ) ( IMP ) t 0 α β ξ t t t + ηln( WAGE ) + δln( RD ) + φln( CAP ) + u ln = + + ln + ln + t t t t where: α= α 1 β= β 1 + λβ 2 ξ= ξ 1 +λ 1 ξ 2 η= η 1 δ= λ 1 δ 2 φ= λ 1 φ 1 Therefore eventually we estmate equatons (12) and (13). Estmaton of parameters of these two equatons allows us to fnd parameters of the equaton (14) and to assess total (drect and ndrect) nfluence of trade on employment Data and econometrc method Above equatons have been estmated wth data on Polsh secondary sector (mnng, manufacturng ndustry and energy, gas, and water supply) for the years (NACE classfcaton at the two-dgt level of aggregaton: 24 sectons, 9 years). Data on trade comes from WTO PCTAS database (PCTAS and PCTAS ) and from yearbooks of Foregn Trade Statstcs (years , CSO). Other data came form successve edtons of Statstcal Yearbook of Industry by CSO (edtons ). As for value added and sold producton t was necessary to use chan growth ndces (at fxed prces). Data on employment regards average level of employment at gven year and refers to full-tme hred employees and part-tme n terms of full-tme hred employees. As for data on employment of blue-collar workers and whte-collar workers, t refers only to enttes employng 9 persons or more (n prevous perods to even bgger frms), whch results n a fact that data on total employment and blue/whte collar workers s not fully coherent. Data on wages was deflated wth prces of sold producton (producton wages). As for data on captal nput, gross value of fxed assets was chosen as a measure. It was deflated wth sold producton ndces. Smlarly expendtures on nnovaton actvty and new technologes were deflated. Expend- (14) 42 ekonoma 19

18 Impact of nternatonal trade on employment n Polsh ndustral sector tures nclude expendtures on R&D actvty, acquston of dsemboded technology and know-how (patent, non-patent nnovatons, lcenses, dsclosures of know-how etc.), acquston of fxed assets requred for nnovatons ntroducton, other preparaton for mplementaton of nnovaton (necessary tranng, marketng etc.). Before startng estmaton procedure, logs of all varables were taken. Estmaton was made wth Stata packet, wth methodology of general least squares for panel data. Hausaman test showed that we may use random effect model and snce test for heteroscedastcty of the panels showed that t s necessary to nclude correcton for heterogenety of varance, a FGLS method of estmaton was used. Frst, the equaton (12) was estmated, then (13) and (12) agan, but as varable PROD were used ftted values form estmaton of the equaton (13). Therefore the employment equaton ncluded only changes n productvty caused by trade, changes n captal stock and expendtures for nnovaton. The procedure was repeated for blue- and whte-collar workers Estmaton results Table 1 presents the results of estmaton of the equaton (12) for total employment n two versons: wth value of mports n fxed prces (a) and wth degree of mport penetraton (b) as an approxmaton of varable IMP. Further estmatons showed that as for employment equatons wth ftted values of productvty equaton (13), varable IMP nfluenced employment n a statstcally sgnfcant way only f t s approxmated wth mport penetraton, not total value of mports. Snce that n all further estmatons (c f) the share of mports n consumpton was used as a measure of IMP. As a next step parameters of productvty regresson (c) were estmated and then three employment equatons (12) for total employment, for blue-collar employment and for whte-collar employment all wth ftted values of regresson (c). Then total drect and ndrect effect of trade on employment was calculated. Most of varables appeared to be statstcally sgnfcant at 1% level of sgnfcance. Estmators had expected sgns. Employment s postvely related to fnal goods demand (domestc sales and exports, wth much hgher elastcty versus domestc sales). It s n accordance wth expectatons basng on nformaton of the level of openness of Polsh economy and mportance of partcular elements of aggregated demand for GDP and ts dervatves. However, t may be nterestng to compare the value of estmators of employment elastcty versus domestc demand n case of blue and whte-collar workers. Knowng the structure of comparatve advantage of Polsh economy, we may expect that elastcty of employment versus domestc sales s hgher for whte-collar workers that for blue-collar. The results confrm ths predcton. On the other hand, the relaton versus wages, productvty and mports (measured both n absolute value and n relatve terms) was negatve. Trade flows have small, but statstcally sgnfcant mpact on labour productvty. We may fnd some support for hypothess that foregn competton actekonoma 19 43

19 Gabrela Grotkowska vates domestc ndustry and leads to hgher productvty: ncrease of mport penetraton by 10% ncreased labour productvty by 0.85%. However, we may be somehow surprsed wth exports effect: t s negatvely related to labour productvty. It may be a result of Polsh comparatve advantages structure. As for exports, we specalze n producton of labour-ntensve goods. Wth relatvely low labour costs, t may gve ncentves to ncrease employment and develop labour-ntensve technques. As we may have expected, productvty s postvely related to captal nvestments (ncrease of fxed assets by 10% leads to productvty growth by 2.5%) and to nnovaton expendtures (growth of expendtures by 10% ncreases labour productvty by 1.2%.). After nsertng to the equaton (12) ftted values from equaton (13) parameters of the regressons were estmated once agan ((d) (f)). The sgns of estmators have not changed and all varables were sgnfcant at the level of 1%, wth the excepton for mport penetraton n the regresson (f) (sgnfcance at the level of 35%). Table 3 present calculaton of total (drect and ndrect) mpact of trade for employment. Both drect and ndrect mpact of exports on employment s postve. It means that exports stmulates labour demand both by drectly stmulatng demand for fnal goods and has ndrect mpact by lowerng labour productvty and therefore ncreasng labour demand. The frst effect domnates. Total elastcty of employment versus exports equals to The mpact of exports on blue-collar workers was stronger (0.52). For low-sklled workers, the drect effect s more mportant (77% of total effect versus 71% for total employment). For whte-collar workers stuaton s somehow dfferent (0,22), wth 67% share of drect effect. Elastcty of employment versus mport penetraton s negatve and as for absolute value smaller than n case of exports ( 0.19) and s sgnfcant parameter only for blue-collar workers. As 43% of total mport mpact may be attrbuted to ts drect effect, n the case of blue-collar workers t s much hgher (92%). It s worth notng that elastcty of employment versus trade flows s hgher than n Western Europe. Abraham and Brock [2003] estmated elastcty versus exports at the level from 0.06 n France to 0.19 n Sweden. Relatvely strong effects of export demand were recorded n Belgum (0.16) and UK (0.17). Polsh result (0.31) s much hgher than those results. It may be related to hgher labour ntensvty of Polsh exports, comparng to Western European countres. In Poland, however, the effect of mport penetraton s much smaller, partcularly n comparson to Scandnavan countres where t reaches even The mpact of trade on productvty s dfferent than n Western European countres as well. In Western countres exports s lnked wth productvty growth, wth elastcty between 0.10 (Span) and 0.33 (Belgum). In Poland, exports s lnked wth lower productvty. It probably doesn t mean that exports causes fall of productvty n manufacturng of goods competng goods, but s rather related to growth of producton share of low-productvty goods (ex- 44 ekonoma 19

20 port suckng). Whle n Western European countres t seems that mport competton doesn t nfluence frms behavour or even decrease productvty, n Poland rather the opposte s the truth: the hgher mport penetraton and degree of competton pressure from abroad, the hgher productvty n Polsh ndustry. Table 1. Estmaton results Impact of nternatonal trade on employment n Polsh ndustral sector (a) (b) (c) (d) (e) (f) Parameters FGLS FGLS FGLS FGLS FGLS FGLS Number of observatons Number of groups Number of perods Wald statstcs χ Probablty > χ Log lkelhood Estmated varable ln(empl) ln(empl) ln(prod) ln(empl) ln(empl ROB) ln(empl NIEROB) Log of producton sold on domestc market n real terms 0.567** (0.016) 0.440** (0.022) 0.544** (0.030) 0.457** (0.037) 0.612** (0.025) Log of labour productvty (value added per one employee) 0.438** (0.048) 0.448** (0.050) Log of hypothetcal productvty calculated as ftted values of equaton (c) 1.272** (0.081) 1.224** (0.095) 0.765** (0.067) Log of value of exports n real terms 0.375** (0.018) 0.391** (0.019) 0.097** (0.030) 0.308** (0.025) 0.398** (0.034) 0.147** (0.022) Log of mports n real terms 0.136** (0.021) Log of mport penetraton degree 0.188** (0.025) 0.085** (0.030) 0.082** (0.028) 1.122** (0.036) 0.019** (0.020) Log of average wage n real terms 0.436** (0.074) 0.499** (0.074) 0.320** (0.016) ekonoma 19 45

21 Gabrela Grotkowska (a) (b) (c) (d) (e) (f) Parameters FGLS FGLS FGLS FGLS FGLS FGLS Log of average wage of blue-collar worker, n real terms 0.309** (0.065) Log of average wage of whte-collar worker, n real terms 0.188** (0.051) Log of value of captal per employee, n real terms 0.246** (0.051) Log of value of nnovaton expendtures per employee, n real terms 0.122* (0.031) Constant 3.408** (0.426) 2.622** (0.448) 3.370** (0.432) 1.877** (0.455) 2.350** (0.512) 4.763** (0.453) Source: Author s calculatons. Table 2. Drect and ndrect effect of trade for employment n Polsh ndustry, Drect mpact of trade for employment Impact of trade for employment through productvty Total mpact of trade Impact of exports on total employment ( 0.097) = Impact of mports on total employment (0.085) = ( 0.108) Impact of exports on employment of blue-collar workers ( 0.097) = Impact of mports on employment of blue-collar workers (0.085) = ( 0.104) Impact of exports on employment of whte-collar workers ( 0.097) = Impact of mports on employment of whte-collar workers (0.055) = ( 0.065) Source: Author s calculatons Quanttatve employment effects of trade The presented-above estmates of elastcty of employment versus exports and mport penetraton allows us to calculate hypothetcal change n total employment, n employment of blue-collar workers and whte-collar workers caused by changes n trade flows n the perod For each secton, relatve change n exports n real terms, relatve change n mports n real 46 ekonoma 19

22 Impact of nternatonal trade on employment n Polsh ndustral sector terms and relatve change n mport penetraton were calculated. Then the average level of total employment, and of blue- and whte-collar workers s calculated as well. In the next step, wth elastcty estmator (from Table 2), the relatve change n employment caused by trade varable s estmated. The procedure has been repeated for regressons (a), (b), (d), (e) and (f). All sectons, wth the excepton for mnng of coal and lgnte experenced the growth of exports n real terms. Wth postve elastcty of employment versus exports, we get a result of employment ncrease due to exports expanson. In the whole ndustry we get estmates from 1930 thousand (regresson (a): only drect effect of trade, mports n absolute value) to 2220 thousand (ndrect effect of trade as well). The hghest absolute growth was observed n the producton of motor vehcles and tralers, manufacture of machnery and equpment, manufacturng of rubber and plastc products and manufacture of food products and beverages. On the other hand, exports doesn t seem to stmulate employment n manufacturng of wearng apparel (n spte of hgh openness) and n manufacture of coke and refned petroleum. At the same tme, most of sectons experenced growth of mport penetraton, whch entaled fall of employment. Although the senstvty of employment versus mport penetraton s much smaller than n case of exports, hgh dynamcs of nflow of goods to Poland resulted n hgh quanttatve effects. Estmated fall of employment caused by growng mports vares from 2.1 mln (estmate wth ndrect effect of mport penetraton) to 2.5 mln (absolute value of mports, not mport penetraton). However, there are sectons where mpact of trade s nsgnfcant. These are: manufacturng of food products and beverages, publshng, prntng and reproducton of recorded meda, manufacture of coke, refned petroleum. On the other hand, the hghest (relatve) fall of employment (except of mnng, see further for comment) took place n manufacturng of wood and wood products, manufacture of rado, televson and communcaton equpment and n the manufacturng of motor vehcles. If we therefore measure mports wth mport penetraton, n the years , total effect of economy openng for nternatonal trade may be estmated to be somehow between 600 thousand (only drect mpact) do +100 thousands of jobs (ndrect mpact as well). These are rather small changes not beng sgnfcant for total changes of employment n ndustry. Postve effect of exports and negatve effect of mports to much degree neutralse one another: hgher as for absolute value elastcty of employment versus exports s compensated wth more dynamc change of mport penetraton. However, we should notce that as for job destructon, mnng ndustry played domnatng role (about 70% of total job loss). Estmates based on regressons (a), (b) and (d) ndcate the total loss of about 1.5 mllon jobs only n ths secton (!). The effect was partcularly vsble n estmates of mpact of trade on employment of blue-collar workers, where over 35-tmes growth of mport penetraton n mnng (from 1.5% to 54%) caused the result of 8 mllon jobs lost n mnng and about 11 mllon n ekonoma 19 47