Role of trade in job creation vital to dual circulation
An employee works at Benxi Floor Company in Liaoning Province. The company’s products are exported to multiple countries. Photo: Lin Lin/PROVIDED TO CSST
Presently, global economic integration runs deep, and labor has become increasingly globalized. Therefore, it behooves researchers working on international trade to seek coordination between trade and employment. The country will better boost a new development pattern of dual circulation by shoring up its ability to add jobs via trade.
New changes
China’s change in comparative advantages has honed trade structures but blunted job creation capabilities through trade. Trading methods’ transformation and the outbreak of COVID-19 have further strained the situation.
First, in recent years, China’s comparative advantages in trade have undergone major changes. Labor-intensive factory goods are no longer the mainstay of exports as their comparative advantages incrementally diminish due to rising labor costs. For years, mechanical and electrical products, which are considered to be capital and tech-intensive, have topped the country’s exports.
In 2020, the proportion of mechanical and electrical exports grew by 1.1 percentage points, reaching 59.4%. This is likely to climb further, according to data from the Ministry of Commerce. Adjusted comparative advantages will fundamentally impact the effects of trade on job creation because capital and technology-intensive products, versus labor-intensive factory goods, require fewer laborers. Therefore, the decreases in job creation have taken their course.
Second, international trading methods have made innovative strides. Cross-border e-commerce has risen to become companies’ first choice for international trade. Online transactions are prevalent all over the world.
Data from the Ministry of Commerce shows that China’s trade volumes through cross-border e-commerce platforms expanded by 31.1% year-on-year in 2020. More than 10,000 traditional trading companies have opened online businesses. Digital trade methods are impacting the entire process of international trade. They can significantly whittle down trade costs and enterprises’ necessary manpower, but in turn, they cut into job opportunities brought by exports.
Moreover, the pandemic is still not truly under control, and it remains unknown how long the effects will persist. Considering the normalized prevention and control methods, export companies have found it tough to keep existing work positions, indicating a sluggish momentum for job creation.
Greater significance
The narrowing role of trade in job creation substantially impacts a major country’s ability to transform economically and influences relevant policies’ effects as they strive for high-levels of openness. For many years, exports have added significantly to employment growth and labor market stability.
According to data from the Ministry of Commerce and the National Bureau of Statistics, foreign investment and foreign trade have created more than 200 million jobs directly and indirectly, of which more than 80 million are for internal migrant workers.
If trade generates fewer jobs, even if there is a slight decline, it will hit labor markets. Economic and social problems due to increases in unemployment undermine a country’s long-range development. The survival and livelihoods of internal migrant populations may suffer if unemployment rates rise. In default of prosperous trade, the goal of stabilizing or even boosting employment will be increasingly beyond reach.
First, less job creation supported by trade may prevent labor markets from improving efficiency and enterprises from optimizing production factors. Elhanan Helpman, a professor of international trade at Harvard University, alongside other scholars, wrote that exports can scale up employment and help attain higher pay for intermediate- and highly-skilled laborers and higher average labor productivity for enterprises, by screening applicants. This is because fierce competition in the global market pushes export companies to screen more intensively, so employers have to offer better wages and benefits for applicants.
Higher pay for intermediate- and highly-skilled workforces can incentivize laborers to improve their skills. Higher labor productivity makes exporting enterprises more competitive in the global market. These changes are emblematic of high labor market efficiencies and enterprises’ structural optimization of production factors. To this end, trade should remain the engine for job creation. Otherwise, these goals are castles in the sky.
Second, export comparative advantages will fail to take full effect if trade loses momentum for generating jobs. In recent years, China’s comparative advantages in labor-intensive products are being challenged due to rising labor costs and industrial chain upgrades. However, it is not advised to abandon the already-formed international competitiveness of labor-intensive products for several reasons.
Labor-intensive sectors, versus capital- and technology-intensive sectors, can employ more laborers. Sustaining their advantages is vital to the survival and growth of a host of low-value-added enterprises.
In addition, advantages in labor-intensive products increase the competitiveness of capital- and technology-intensive products. If we fail to restore and shield the role of trade in job creation, exporting domains and enterprises won’t hire sufficient laborers. As a result, China will, in a shorter time, lose its comparative advantages in labor-intensive products, thus lose the momentum to develop comparative advantages in capital and technology-intensive products. This will hurt its long-term efforts to pursue higher quality trade.
Third, a declining number of job opportunities created by trade may also disturb the effectiveness of policies that aim to expand domestic demand. These policies secure stable economic development when foreign trade becomes difficult. To respond to the uncertain risks of the external economy, the government has been striving to increase domestic demand.
Before the goal is accomplished, economic growth still partly relies on foreign trade while expansion of domestic demand requires stable employment to be supportive. If the situation lingers, exports can neither contribute to economic growth nor provide stability for employment, thus disturbing the process of expanding domestic demand.
Cemented efforts
Facing this challenge, it is necessary to identify and distinguish production characteristics of different export products and the industrial chain’s distribution. Increased access to job creation throughout the entire industrial chain will drive trade to create more jobs, thus smoothing the course of dual circulation.
Export products, throughout the entire industrial chain, should be further modernized. Meanwhile, export industries with diverged forms of factor intensity should promote coordinated development. As for national development, only such coordination can maintain its overall economic operation and complete industrial upgrades while ensuring employment.
Job opportunities in technology- and capital-intensive companies used to distribute to the middle and lower reaches of the industrial chain. For labor- and resource-intensive companies, employment opportunities are often created in upper and middle reaches of the industrial chain. Employment demand regarding intermediate- and high-technology products should come from the source end of innovation and design. Companies devoted to low-technology products should generate more jobs at the lower end of the industrial chain, such as processing, after-sales, transportation, and warehousing.
Also, the country should promote labor skill complementarities and encourage export companies to recruit highly-skilled labor to spur the productivity of on-the-job laborers. Helpman and other scholars pointed out that labor efficiency (measured by the average labor output) will rise with the recruitment of a more skilled workforce, which stems from potential competition between new employees and on-the-job laborers.
Export companies should hire highly-skilled workers to boost on-the-job laborers’ production efficiency, creating more possibilities for further subdivision of labor, and more professional jobs. Technical training should take place before workers enter the labor market. Governments should train professional talent before they are hired. This move can not only whittle down enterprises’ costs but also ensure that employees are able to start work immediately, sustaining enterprises’ funding capacity with newly created jobs.
Chen Hao is an associate research fellow from the Institute of International Economy at the University of International Business and Economics.
Edited by MA YUHONG