Research Highlights

How to help U.S. trade policy create jobs at home

One important goal of U.S. trade policy is to create jobs at home. To ensure that goal is being met, policymakers need data that can quantify the link between exports and domestic job creation. For example, a 2013 report from the Department of Commerce estimates that $1 billion dollars’ worth of exports will create 5,590 U.S. jobs. The estimate is derived from Bureau of Labor Statistics’ calculations, and those in turn are based on input-output tables from the Bureau of Economic Analysis.

But research also suggests that we need better data. Current estimates of export job creation likely diverge from their actual effects on jobs—either overestimating or underestimating job creation. So say papers published in the Upjohn Press conference volume, Measuring Globalization: Better Trade Statistics for Better Policy.

Why aren’t our current estimates right? Currently, U.S. statistical agencies do not collect data on an important factor that affects exports’ ability to produce domestic jobs—the use of imported intermediate inputs in exported goods and services. Many of the country’s most successful exporters increasingly rely on imported intermediates to make their products competitive in the global marketplace.

Consider commercial aircraft and parts, for example, which in 2014 accounted for $113 billion of U.S. exports. Exported commercial planes often utilize a wide variety of imported components such as wings and electrical systems. Or consider financial services, which in 2013 comprised $84 billion in exports—that is, services such as brokerage and investment banking provided to foreign individuals and companies. But when the New York office of Goldman Sachs advises a European company on the purchase of a U.S. company, that service may rely heavily on information provided by Goldman’s European offices.

The greater the share of imported intermediates going into an exported good or service, the fewer domestic jobs will be generated. So clearly it’s important to be able to quantify the use of imported intermediates in, say, an exported piece of construction equipment. But the existing data yields no clue about whether export-oriented industries use more or fewer imported intermediates, relative to industries that principally produce for domestic markets.

Conference authors suggest a smarter way to quantify export job creation: "trade in value added" statistics, or TiVA, which quantify the use of imported intermediates in exports, by industry and by source country. TiVA-type trade statistics report on the value-added by a country, rather than the gross value of its exports. As a step in this direction, the OECD has released initial tables on “Value added in gross exports by source country and source industry.”

These tables take global supply chains into account and make it possible to calculate more precise estimates of the jobs created by exports. For example, if a particular nation’s exporting industry mainly assembles parts imported from other countries, that nation’s industry contributes a relatively low amount to value added, for any given dollar value of exports. By contrast, if another nation’s industry mainly uses domestic-sourced intermediate inputs, that industry will contribute a relatively high amount to value-added, for any given dollar value of exports. And all other things being equal, exports which have a higher domestic value-added will create more jobs.

These OECD figures are just preliminary estimates, of course. But they point in the right direction for developing better estimates of jobs created by exports.

By Michael Mandel and Susan N. Houseman