Explaining the Employment Effect of Exports: Value-Added Content Matters

This paper estimates and decomposes the impact of export opportunities on countries’ employment by using a global input-output analysis, focusing on the U.S., China, and Japan. The greater they export, the greater employment in the exporting countries. However, we first document that the number of jobs created per exports varies substantially across destination countries. We find that exports from sectors with higher domestic value-added contents such as natural resource, textile, and service sectors lead to a greater employment effect. As a result, cross-country differences in sectoral compositions of exports explain a large part of the variations in the employment effects across destination countries. Time series changes in the employment effect of exports come from changes in (1) the labor-to-output ratio, (2) input-output linkages, and (3) sectoral compositions in exports. Results suggest that the first channel worked to reduce the employment effect in all of the three countries we focused but the directions of the last two channels are different across the countries.