Do Exporters Make Better Bosses?

At a time of global economic uncertainty, the issue of trade and employment is becoming the focus of public debate — particularly with the constant news of large scale lay-offs in the media.

If this trend continues, there is the risk of increased calls for protectionism.

This is a concern because we all know what has happened in the past, when the world has returned to protectionism — mass unemployment, inequality and greater conflict than can even occur in the trade sphere alone.

Much of the pro-trade argument in the debate centers on the notion that 'trade creates jobs' which is sometimes misused by some who claim that if exports create jobs, then imports must cost them.

But this misses the point. The main rationale for trade (both exporting and importing) is that it improves the overall productivity and international competitiveness of a national economy that helps lock-in low unemployment and long-term job security.

But what about exporting companies themselves? Do they make better bosses? Well, yes, on average.

There is evidence at the micro level that exporters, on average, improve the quality of employment as they are innovative, invest in technology and education and training, and achieve higher levels of productivity and profitability — relative to domestic businesses.

They certainly pay better. In Australia, for example, according to Austrade research, exporters on average pay 60% higher wages than non-exporters.

They are also found to achieve higher standards of occupational health and safety, equal opportunity employment practices, better working conditions and more likely to be unionized and use collective bargaining agreements when compared to non-exporters.

The result of this Australian study is also consistent with overseas studies of exporters and the labor market in both mature and developing countries as diverse as Bulgaria, Chile and Taiwan.

In addition, foreign investors can have a positive impact on the labor market. A study by Access economics on the effect of foreign direct investment (FDI) on jobs found that a majority of foreign owned firms in Australia accounted for 14% of employment (equivalent to around 1.3 million jobs) and made significant contributions to output (value added), exports and R &D expenditure.

These findings have been replicated in developing economies — particularly in China.

So is trade really a magic wand? Not on its own. Openness is necessary — but not sufficient for superior labour market outcomes.

Having an open economy helps employment opportunity, but countries still need social safety nets and labour market institutions that protect the bargaining power of the weak, and help workers adjust to changes in the overall economy.

We're especially learning now, at a time global financial crisis, that social protection (that is, social safety nets and well functioning labor market adjustment institutions) is what is needed to cope with major demand shocks to the economy. In contrast, trade protection is a road to nowhere.