Does export growth create jobs?

• Author: Slaper, Timothy

That increasing exports would result in increasing employment is almost self-evident. If we--as a nation or as a state--produce more goods and services for export, then that increased production should translate into more jobs. The International Trade Administration (ITA) of the U.S. Department of Commerce touts this regularly:

The International Trade Administration is focused on job creation. Specifically, ITA works to create environments where U.S. companies can export more effectively and exporting U.S. companies can create more jobs. To support ITA's efforts to create more American jobs, the Office of Trade Policy & Analysis assesses the impacts of various trade policies and issues on the U.S. economy and evaluates how they will affect U.S. employment. (1) The ITA produces annual reports and estimates for the number of jobs that each state can attribute to its exports. The Indiana Business Research Center (IBRC) traditionally reports these estimates in our annual export report. The ITA estimation procedure is straightforward: if a state employs 3 million people in manufacturing and one-third of that manufacturing output is sold overseas as exports, then exports can be said to have created or supported 1 million jobs.

There is at least one little problem to this happy story line: the academic research does not necessarily support the claim that exports generate jobs. The savvy reader will have already noted that it is one thing to allocate jobs based on export share of manufacturing shipments (as ITA has done) and another to show the effect of exports on employment over time (as several economists have done).

For example, Leichenko (2000) found that export growth tends to contribute to employment reduction and raises the question of whether export-related increases in labor productivity may play a role. More recently, the empirical analysis of Kilkenny and Partridge (2009) agrees with similar studies that show "the relationship between the export sector employment and growth is negative" (emphasis theirs). They go even further to caution local development officials and policymakers that the export-base hypothesis--producing for markets outside the region will generate dollar inflows into the region and promote economic development--is not supported by the data (page 924).

These findings and the fact that Indiana's exports over the last 16 years have been rising strongly, almost tripling from 1998 to 2013, motivates one to look a little deeper.

The analysis and the article are structured as follows: First, a correlation analysis at the state level compares changes in manufacturing employment with changes in exports. Even if changes in exports are not the cause of all the stresses and shocks to the manufacturing sector, one would expect to see changes in exports having some influence on manufacturing employment. (We consider manufacturing because it is the dominant exporting sector and while agricultural exports are considerable, they cannot be directly traced to any one state. There are no Indiana logos on those soybeans going to China.)

Then, we look at changes in Indiana exports and employment by industry to see if one can reach any conclusions about export growth and employment growth in the Hoosier state. Are the relationships noted in the state-by-state analysis better explained by industry dynamics?

Third, we present some rudimentary evidence that may help explain--spoiler alert--the negative relationship between export and employment growth.

Correlations

Table 1 shows the top 10 states in terms of manufacturing employment and presents the correlation between the change in exports for each state and the change in manufacturing employment. It also shows the states' rank in terms of manufacturing export volume.

While Washington State didn't make the top 10 list in terms of manufacturing jobs, it ranked third in exports. Interestingly, in terms of Washington, it was only one of six states that...