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Job creation, job destruction and firm-level international trade involvementMauro Pisu

Research Department:

2

Introduction

►How the globalisation process may affect ●employment growth

●job reallocation

►Possible to investigate these issues using firm-level data

►Advantage: ●micro explanations of macro phenomena

●analysis of topics macro data cannot deal with (e.g.: job creation and destruction)

►Firm-level data evidence are important since:●academic literature has shown that firms are greatly heterogeneous

●net changes in employment at country- or industry-level result from expansion of some firms and contraction in others

●there is contemporaneous job creation and destruction

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Heterogeneous firms trade theory

►Main features: Melitz (2003), Bernard, Redding, Schott (2007)

●Heterogeneous firms (in productivity levels)

●Sunk and variable costs

►Results:

●Only the most productive firms self-select into export markets

●Trade causes reallocation of jobs from non exporting to exporting firms

●Simultaneous job creation and destruction (Davis and Haltiwanger 1992) within industry because of international trade

►Models have been extended to FDI and imports decisions

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Belgian firm-level data

►Merging of three data sets from the NBB:●Annual accounts of Belgian companies (Central Balance Sheet Office):

information on the number of employees in FTE●External trade statistics (Intra- and Extrastat inquiries) ●Survey on foreign direct investment (balance of payments statistics)

►Time span: 1997 - 2004

►Population in 2004:●136,945 firms1 that reported at least one employee (1,827,786 workers in

FTE), of which:2,643 firms involved in direct investment relations (either as direct investor or as

direct investment company or both at the same time)26,744 firms involved in external trade

►Not entirely comparable with the population considered in the national accounts

1 Out of 309,486 firms that filed a balance sheet in 2004.

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Non-traders Exporters Importers Two-way traders MNEs Foreign affiliates

Distribution by type of firm in 2004(percentages of the total)

Source: NBB.

Shares in the number of firms

Shares in employment

Total Manufacturing Wholesale and retail

Services

79% 59% 65% 87%

50%26%11%35%27% 43% 24% 21%

11%

11%

8% 15%

16%

28%

24% 6%6%

2%

6%

12%

4%

3%

3%8%

4% 7%

8%

2% 4%1%

21%

8%

7%

14%

6%

14%

1%2%2%2%1%

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Sectoral distribution of the external trade

Source: NBB.1 Exports and imports of goods only.

(percentages of the total for the whole population)

Exports1 value Imports1 value

1997 2004 1997 2004

Agriculture, fishing and mining 0.5 0.5 0.2 0.2

Manufacturing 69.2 69.3 46.5 46.9

Recycling, utilities and construction 0.7 1.4 2.9 3.4

Services 29.6 28.8 50.4 49.5

Wholesale and retail 28.1 26.6 48.0 46.3

Other services 1.5 2.3 2.4 3.1

of which: Coordination centres 0.1 0.2 0.1 0.2

Total 100.0 100.0 100.0 100.0

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Non-traders Exporters Importers Two-way traders MNEs Foreign affiliates

(manufacturing and services, selected industries, percentage changes between 1997 and 2004)

Source: NBB.Note: only those industries that account for 2 p.c. or more of total employment are represented here.

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Job creation and destruction(Cumulated annual changes in the number of jobs: 1997 - 2004)

Source: NBB.

►Net changes in employment hide a great deal of the contemporaneous job creation and destruction

►These figures imply that on average 224,491 jobs were created or destroyed each year in these two broad sectors

(1)

Creation

(2)

Destruction

(1) - (2)

Net creation

(1) + (2)

Total turnover

Manufacturing 207,730 251,805 -44,075 459,535

Services 629,312 482,593 146,719 1,111,905

Total 837,042 734,398 102,644 1,571,440

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Share of jobs created and destroyed due to entries and exits, 1997-2004

Source: NBB.Note: These graphs show the percentage of the jobs created and destroyed by each type of firms due to entries and exits, respectively.

10

Job creation and destruction rates across trading status(contemporaneous creation and destruction rates; Davis and Haltiwanger (1992) methodology)

Source: NBBNote: 1 p.c. = 0.01

NT: Non-traders, EXP: Exporters, IMP: Importers, TWT: Two-way traders, FOR: Foreign affiliates, MNE: Belgian Multinationals.

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Regression results(OLS estimates ; coefficients in percentage point)

Source: NBB.n.s.s. = not statistically significant.Notes: Specification is gijt = α + βTSijt + δSijt + ηPijt + σPRijt + ID + YD + εit, where gijt = employment growth rate of firm i in industry j at time t; TSijt = trading status; Sijt = size; Pijt = productivity; PRijt = profitability; ID= industry (four digits); YD = time. Time and industry dummies not reported.

Manufacturing Services

Net job creation

Job creation

Job destruction

Net job creation

Job creation

Job destruction

Trade status

(benchmark: non-trader)

Domestic exporter 1.5 -6.7 -13.3 1.3 -6.7 -12.4

Domestic importer 5.8 -4.5 -16.3 3.2 -5.5 -14.6

Domestic two-ways trader 5.2 -5.8 -18.4 3.3 -5.6 -14.8

Belgian multinational 4.5 -8.6 -21.9 -2.3 -9.8 -13.9

Foreign Affiliate 2.5 -11.5 -22.4 -2.0 -8.6 -13.4

Size

(benchmark: small)

Medium-small -1.8 -12.1 -22.6 -6.0 -39.0 -6.8

Medium-large -4.1 -17.2 -29.1 -5.1 -40.5 -21.4

Large -7.5 -20.3 -27.6 -6.1 -45.4 -30.9

Productivity

(benchmark: low)

Medium-low 1.8 -13.8 -15.4 -3.8 -17.7 -16.2

Medium-high 4.7 -13.1 -18.2 -2.7 -19.2 -20.2

High 5.7 -12.0 -18.4 -3.8 -21.4 -24.7

Profitability

(benchmark: low)

Medium-low 1.3 -8.4 -8.2 -3.0 -10.2 -7.8

Medium-high 3.6 -6.6 -8.6 n.s.s. -6.2 -6.6

High 3.6 n.s.s. n.s.s. n.s.s. 1.1 4.7

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Regression results, without entries and exits(OLS estimates ; coefficients in percentage)

Manufacturing Services

Net job creation

Job creation

Job destruction

Net job creation

Job creation

Job destruction

Trade status


Domestic exporter 6.2 n.s.s. -15.0 6.2 n.s.s. -14.0

Domestic importer 9.4 n.s.s. -17.7 7.6 0.5 -15.8

Domestic two-ways trader 9.1 -0.7 -20.3 7.6 n.s.s. -17.0

Belgian multinational 7.5 -3.9 -22.4 1.8 -3.2 -12.9

Foreign Affiliate 6.5 -5.1 -23.0 1.4 -3.3 -13.8

Size

(benchmark: small)

Medium-small 5.0 -2.8 -20.7 9.4 -14.8 -5.9

Medium-large 3.4 -6.8 -26.3 11.4 -15.0 -19.2

Large n.s.s. -10.5 -24.3 11.0 -18.5 -27.4

Productivity

(benchmark: low)

Medium-low 6.9 -1.1 -10.8 6.9 -0.7 -11.4

Medium-high 9.0 n.s.s. -11.9 8.7 -0.7 -14.0

High 10.5 n.s.s. -11.6 10.6 0.4 -17.5

Profitability

(benchmark: low)

Medium-low 4.2 -1.2 -6.1 3.7 -0.9 -6.5

Medium-high 6.0 n.s.s. -6.5 5.6 1.0 -5.9

High 5.2 3.8 n.s.s. 3.5 4.5 3.1


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Regression results for wholesale and retail and others services

(OLS estimates ; coefficients in percentage)

With Entries and Exits

Net job creation Job creation Job destruction

W&R Services W&R Services W&R Services

Trade status


Domestic exporter 1.5 n.s.s. -7.1 -6.9 -13.1 -11.4

Domestic importer 3.0 2.5 -6.4 -4.4 -16.0 -10.0

Domestic two-ways trader 2.8 1.6 -6.8 -6.2 -16.4 -10.9

Belgian multinational n.s.s. -4.6 -8.4 -10.9 -15.5 -12.9

Foreign Affiliate n.s.s. -4.6 -8.8 -9.0 -18.4 -9.5

Without Entries and Exits

Trade status


W&R Services W&R Services W&R Services

Domestic exporter 6.7 5.3 -0.8 n.s.s. -15.1 -12.4

Domestic importer 8.1 7.2 n.s.s. 1.6 -17.6 -11.3

Domestic two-ways trader 8.3 7.3 n.s.s. 1.2 -19.2 -12.5

Belgian multinational 3.8 n.s.s. -3.7 -3.0 -17.4 -10.4

Foreign Affiliate 4.9 -1.3 -2.4 -4.1 -19.6 -9.4


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International trade and job reallocation

► Issue: effect of firm-level parcitipation in int. markets on job reallocation: shifts of jobs from non-trading to trading firms

► Methodology of Davis and Haltiwanger (1992) applied to trading and non trading firms (within sectors)

Excess job reallocation:

s are different types of firms (trading and non-trading firms)

► If between component high and within component low

● then firm-level trade is an important cause of job reallocation (consistent with theoretical models)

Within

Net-Sum

Between

Net-Net Net -Sums

ststs

tss

sts

tss

st

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Year Groups: International status

Simple classification Detailed classification

Without entriesand exitsa

With entries and exitsb

Without entriesand exitsa

With entries and exitb

1998 11.30% 20.17% 24.99% 32.17%

1999 2.93% 13.24% 20.64% 29.20%

2000 5.22% 16.67% 13.79% 27.95%

2001 5.88% 11.59% 15.69% 19.91%

2002 3.44% 9.25% 13.16% 17.46%

2003 6.14% 13.03% 25.66% 30.02%

2004 10.28% 16.68% 23.77% 26.13%

Mean 6.46% 14.38% 19.67% 26.12%

Source: NBB.Notes: Yearly figures are weighted averages of the between shares computed for each three-digit Nace sector; the weights used are the number of firms in each three-digit industry-year cell; a figures computed considering only surviving firms (i.e. dropping entries and exits); b figures computed allocating births and deaths to specific types of firms according to their trading status the year they entered and the year before they exited.

Between share of excess job reallocation(average of three-digit industry level figures)

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Summary and conclusions (1/2)

► Firm level data allow to study how international involvement affects the process of job creation and destruction rates, not only net changes

► Belgian data: controlling for other factors, international trade involvement is associated with:

● higher net employment growth rates

● lower job creation and destruction rates

Workers face a lower uncertainty in trading firms

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Summary and conclusions (2/2)

► Job reallocation rates (Davis and Haltiwanger 1992) between trading and nontrading firms are relatively low

15-25 percent at three-digit level

► All types of firms (traders, non-traders, MNEs and foreign affiliates) create and destroy jobs

● participation in international markets is not the only explanation of job creation and destruction process

► Open questions:

● impact of international trade involvement on workers having different skills

● how international trade compares with other shocks

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