Trade and Labour Market Adjustments

This study describes developments in international trade and OECD labour markets and analyses possible linkages between them. It depicts recent developments in offshoring, trade in tasks and the integration of large emerging economies into the world market. The labour market in major OECD countries has been characterised by rising employment relative to the total population and declining unemployment rates during the past decade. Job security has not changed greatly between 1995 and 2005, but the wage share of national income has declined in many OECD countries. The report does not find evidence of a linkage between import penetration and overall employment or unemployment, but relatively small effects on productivity and employment patterns are found. A shift towards sourcing of imports from emerging markets slightly improves labour productivity and reduces labour demand in the importcompeting sectors or activities. Offshoring of services has a relatively strong positive marginal impact on labour productivity, but the scale of offshoring is still modest. The labour market impact of offshoring is stronger in countries with high employment protection and high barriers to entrepreneurship. The study finally argues that offshoring is motivated by the need for flexibility and lower costs and helps firms remain competitive. Thus, offshoring may well relax the pressure to move the entire manufacturing production chain to low-cost countries.