Industry and globalisation

Trade in Employment (domestic labour inputs sustained by foreign final demand)

 

Last updated: September 2016

Growing economic integration worldwide has increased the sensitivity of employment in one country or region to changes in demand in other countries or regions. However, traditional statistics do not reveal the full nature of interdependencies - notably how consumers in one country may drive production and thus, sustain jobs in economies further up the value chain. The OECD’s Inter-Country Input-Output (ICIO) Database, primarily developed to produce indicators of Trade in Value Added (TiVA), also allows indicators to be developed that provide insights into the origins of demand for a country’s employment. For example, estimates of domestic employment embodied in foreign final demand attempt to capture the share of jobs used in production to satisfy foreign demand for final goods and services. Similarly, labour costs incurred in production can be disaggregated according to origins of demand (both domestic and foreign).

 

Overview of the results

The Trade in Employment (TiM) Database presents consistent employment by industry data for all OECD and EU28 countries as well as covering all G20 countries. Labour costs are provided for all ICIO/TiVA target countries. The 34 ICIO/TiVA industries are covered for the time-period 1995-2011.

Note that the results presented here are based on the 2015 edition of the ICIO.

 

>> Direct access to the indicators in .Stat:

Estimates of employment embodied in foreign final demand can reveal the extent of a country’s integration into the global economy. In 2011, for example, between 30% and 40% of employment in the business sector in most European countries were sustained by consumers in foreign markets (though predominantly within Europe – a consequence of economic integration). For some smaller European countries this share reached over 50%. In Japan and the United States shares are lower, reflecting their relatively large size and lower dependency on exports/ imports. In spite of this, initial estimates suggest that in 2011 the number of jobs sustained by foreign demand reached over 12 million in the United States and over 7 million in Japan.

 

Figure 1. Employment in the business sector sustained by foreign final demand, by region of demand, 2011 (FFD_DEM)

% of total business sector employmentJobs in the business sector sustained by foreign final demand, by region of demand, 2011

The business sector is defined according to ISIC Revision 3 Divisions 10 to 74 i.e. total economy excluding Agriculture, forestry and fishing (Divisions 01-05), Public administration (75), Education (80), Health (85) and Other community, social and personal services (90-95).

In 2011, shares of business sector services labour costs embodied in final demand for manufacturing goods varied between almost 10% to almost 30%, with apparent decreases since 2000 for bulk of OECD countries. Wholesale and retail trade and transportation and storage services in countries with relatively bigger share of manufacturing sector on total economy represent the majority of business sector services labour costs incurred in final demand for manufacturing goods. Examples include Germany (49%), the Slovak Republic (62%), Hungary (52%), Turkey (75%) and People’s Republic of China (51%). On the other hand, the United Kingdom, Finland and Israel are countries with the most ICT services intensive manufacturing, with shares around 10% of total business sector services compensation of employees.

 

Figure 2. Compensation of employees in business sector services embodied in final demand for manufactured goods, 2000 and 2011

% of total business sector services compensation of employees

Compensation of employees in business sector services

Sectors are defined according to the following ISIC Revision 3 Divisions: Manufacturing (15 to 37);  Total business sector services (50-52, 60-74); Wholesale and retail trade (50-52); Transport and storage (60-63); Finance and insurance (65-67); Other business services (70,71,73-74). ICT services is an aggregate of Telecommunications (64) and Computer and related service activities (72).

 

Methodology and data sources

Employment embodied in final demand can be estimated in a similar manner to that of TiVA indicator "Domestic value added embodied in foreign final demand" using the ICIO system.

The mathematical notation builds on input-output theory.

The global Leontief inverse matrix B and global final demand matrix y are drawn from the OECD ICIO tables. Rather than pre-multiplying the matrices with value added to output ratios, as for TiVA indicators, to calculate employment or labour costs embodied in final demand, the matrices are multiplied by an employment multiplier (ee) or a labour costs multiplier (el).

The employment multiplier represents the number of persons engaged per unit of industry output while the labour costs multiplier consists of the shares of labour costs (compensation of employees) in industry output. These multipliers are different for all industries in all countries. 

Trade in Employment: multipliers 

Such estimates derived through an input-output accounting framework are sensitive to certain assumptions. Two main assumptions are that exporting firms have (i) the same labour productivity as firms producing goods and services for domestic markets and (ii) the same share of imports, in relation to output, as domestic firms.  However, evidence suggests that exporting firms have (a) higher labour productivity and (b) a higher share of imports for a given output, suggesting that the results presented may be biased upwards. Also, employment embodied in final demand may unduly capture employment in non-market activities. In particular, for non-OECD countries, there is no differentiation between employment engaged in non-market agricultural activities and that used to produce intermediate agricultural goods. Finally, note that the employment estimates are not full time equivalent measures and that the results relate to jobs sustained rather than created, as the jobs may have previously existed to serve domestic consumers.

Domestic employment data by country and industry are collected from various sources such as ISIC Rev.3 versions of  OECD’s Structural Analysis (STAN) and Annual National Accounts databases, the Socio Economic Accounts from World Input-Output Database (WIOD) project, India KLEMS and Russia KLEMS projects and where necessary, Labour force surveys (LFS) and Structural business statistics (SBDS) sourced from OECD, Eurostat or UNIDO.

Estimates of domestic labour costs (compensation of employees) by industry in country come from OECD’s Input-Output (IO), Structural Analysis (STAN) and Annual National Accounts databases.

Labour costs, a major component of value added, include wages and salaries of employees paid by producers as well as supplements such as contributions to social security, private pensions, health insurance, life insurance and similar schemes.

If, after exploiting the aforementioned data sources, there were still gaps in the industry employment figures, estimates were derived using the employment over labour costs ratio of the nearest higher industry aggregate.

In cases where target industry employment estimates were absent for recent (or early) years, extrapolation was carried out based on the growth rates of the nearest higher industry aggregate of employment over labour costs ratio.

Trade in Employment: estimation formula

OTHER Links

http://oe.cd/icio

http://oe.cd/tiva

Any suggestions or queries can be sent to stan.contact@oecd.org mentioning Trade in Employment in the title of your message.

 

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