Are workers more vulnerable in tradable industries?
In this report we examine whether the probability of displacement is higher and income losses after displacement are greater for workers in tradable services and manufacturing than in non-tradable services. We also analyse whether the probability of re-employment is higher for workers displaced from tradable services and manufacturing than from non-tradable services.
The growing internationalisation has positive impact on productivity and growth owing to improved resource allocation where capital and labour are transferred to more productive parts of the economy. The drawback from such structural changes is that certain groups and individuals might be hurt by displacement and having a difficult time to find a new job. The purpose with the OECD initiated project “Helping displaced workers back into jobs by maintaining and upgrading their skills”, which this report is a contribution to, is to try to identify groups that are particularly hard hit and how big the displacement costs are in terms of unemployment and wage losses. In the end this study will provide a base for working out policies that, on the one hand, limit the adjustment costs for individuals and societies but, on the other hand, do not hamper the necessary labour reallocation in order to benefit from the growing internationalisation.
Reduced trade barriers and lower costs of transportation and information have meant that a growing part of the economy has been exposed to international trade. In particular, this is the case in the service sector. We divide the service sector into a tradable and a non-tradable part using an approach to identify tradable industries developed by Jensen and Kletzer (2006). We examine whether the probability of displacement is higher and income losses after displacement are greater for workers in tradable services and manufacturing (tradable) than in non-tradable services. We also analyse whether the probability of re-employment is higher for workers displaced from tradable services and manufacturing than from non-tradable services.
We find that in the 2000s the probability of displacement is relatively high in tradable services in comparison to non-tradable services and manufacturing. On the other hand, the probability of re-employment is higher for those displaced from tradable services. The largest income losses are found for those who had been displaced from manufacturing. Interestingly, the income losses of those displaced from manufacturing seem mainly to be due to longer spells of non-employment, whereas for those displaced in tradable services lower wages in their new jobs compared to their pre-displacement jobs appear to play a larger role.