Theory on the Impact of International Trade on Employment

Scope:

International trade is limited to considering export and import activities at the industry level and at the enterprise level. The indicators considered in this thesis are export orientation; import penetration and using information on export and import taxes arising in the year as representative variables for international trade.

The issue of employment in the thesis will focus on working labor and sustainable employment. Sustainable employment is based on the definition of the International Labor Organization but is consistent with the quantitative content of the thesis, which is employment that must ensure the following conditions: paid employment, employment with a labor contract, employment with social insurance (SI), employment with income above the low income level or employment with income above 2/3 of the median income level.

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Research space: Research nationwide

Research period: Employment status in the period 2012-2018; enterprise level for analysis of econometric model is studied in the data period 2012-2017 (information from 2012 to 2016); secondary industry level (84 industries) for the period 2011-2018.

4. Research methods

- Research overview: documents, secondary data researched, reviewed and used in the thesis

- Statistical methods, mathematical models, econometrics: statistical description of the relationship between international trade and employment issues; regression models with GMM array data are used to analyze the impact of international trade on employment issues; logit probability regression models are used to evaluate the impact of international trade on "sustainable employment opportunities for workers".

- Software to support data processing and model estimation: Stata software, version 14

Data sources used: Labor and employment survey of the General Statistics Office and enterprise survey of the General Statistics Office. In addition, the thesis uses data on import and export of goods and services of the General Statistics Office and statistical data on import and export by product (HS4 code) from Trade Map of Trade Statistics for the development of international trade.

(https://www.trademap.org/Index.aspx)

The research process of the thesis is shown in the following diagram:

Research objectives

Research question

Research methods

Overview Research

Quantitative research

Collect, measure, process data

Model estimation

Analyze the results

Conclusion and policy implications

Figure 1. Research process flow diagram

Source: Author's synthesis

5. Scientific and practical significance

The methods used in the thesis are quantitative approaches, the data used in the thesis are from the Vietnam Statistical Agency, General Statistics Office, so the thesis has high reliability when answering the research questions.

- The thesis has applied the economic mathematical model to the problem of maximizing profit or minimizing cost and the hypothesis about the efficiency parameter A depending on international trade to provide the basis for a theoretical model of labor and labor demand by labor type (low-skilled group, female labor group).

- The thesis uses panel data estimation methods but measures international trade through values and uses lagged variables to overcome the endogeneity problem of the model with the GMM method, the models are controlled for macro factors through time dummy variables.

- Studies on the impact of international trade on employment in Vietnam mainly use dummy variables on the import and export status of enterprises. However, this method cannot determine the impact when the scale of import and export changes. The thesis uses the value of export and import to overcome this problem.

- Using data matching techniques to apply the logit model to assess the impact of international trade on sustainable employment opportunities for workers in general, female workers, and workers without certificates. This is a method rarely seen in studies in Vietnam to analyze the impact of international trade on sustainable employment opportunities.

6. Structure of the thesis

In addition to the introduction and conclusion, the report includes Chapter 1. Theoretical basis and research overview.

The content of this chapter focuses on clarifying: i) theoretical basis such as definitions of international trade, employment and employment opportunities, sustainable employment, labor demand and theories on the impact of international trade on employment; ii) overview of studies on the impact of international trade on employment, employment by gender, employment by technical expertise and the impact of international trade on employment opportunities.

Chapter 2. Research methods

The content of this chapter focuses on clarifying the basis for proposing analytical models such as the model for analyzing the impact of international trade on employment, international trade, and the impact of international trade on employment.

economic impact on skill-based employment and an analytical model of the impact of international trade on employment opportunities. In addition, this chapter also clarifies the estimation method for the models of the thesis.

Chapter 3. Current status of international trade and employment issues in Vietnam

The content of chapter 2 focuses on analyzing the current state of international trade in Vietnam through import-export and trade balance indicators. In addition, an overview of the current state of employment is also presented.

Chapter 4. Analysis of the impact of international trade on employment This chapter will focus on describing the model, the data used and the results.

Estimating the impact of international trade on employment at the industry and national levels

enterprises to show the impact of international trade on labor demand, female labor demand, low-skilled labor demand and employment opportunities. The results are compared with other studies to further verify the research results.

Chapter 5. Conclusion and policy directions

The content of this chapter focuses on drawing some conclusions from the research, along with some policy directions to take advantage of and limit the negative impacts of international trade on employment. The new points as well as the limitations of the thesis are presented in this chapter.

CHAPTER 1.

THEORETICAL BASIS AND RESEARCH OVERVIEW

1.1. Theoretical basis

1.1.1. International trade

International trade is the exchange of goods and services between countries for the purpose of economic gain. This definition is agreed upon by Economics Concepts (2012), which defines international trade as cross-border trade. The exchange of goods and services is a form of socio-economic relations, reflecting the interdependence between countries. In most countries, international trade accounts for a significant part of economic, social and political importance. Therefore, without international trade, countries would be limited to goods and services produced within their own borders. However, Economics Concepts Concept (2012) states that international trade entails costs such as tariffs and other costs related to national differences such as language, legal system or culture. Factors of production such as capital and labor tend to move more freely within a country than between countries (Danjuma et al., 2014).

1.1.2. Jobs and job opportunities

According to the International Labour Organization (ILO), “Employment is any work activity that is remunerated in cash or in kind. Employed persons are those who do something for wages, profit or in kind or who engage in self-employment for profit or family income without receiving wages or in kind”.

According to Clause 1, Article 9, Chapter II of the Labor Code of the Socialist Republic of Vietnam, it is stipulated that: “Employment is a labor activity that generates income and is not prohibited by law”. Employment consists of three elements: labor activity, generating income and this activity must be legal. Specifically as follows: first, it must be a labor activity, demonstrating the impact of labor on means of production to create products or services; second, that activity must generate income; third, this activity must be legal, that is, labor activities that generate income must be recognized by law. Therefore, depending on the socio-economic conditions, customs, and ethical concepts of each country, the law has different provisions in determining the legality of labor activities.

According to Humphrey, Albert (2005) defines opportunities as “uncontrollable external events that can be potential advantages that bring about the possibility of success”. According to Emet, Merba (2017), opportunities are understood as “a situation or condition that is suitable for an activity that is likely to occur, considered as an advantage and motivation for an activity to take place with positive and favorable characteristics”. Opportunities are positive outcomes for individuals determined based on possible ecosystem conditions. In fact, opportunities are “external environmental conditions that allow individuals to take advantage of strengths and overcome weaknesses or limit environmental threats and risks” (Harrison and St. John, 2004).

Thus, employment opportunities are understood as an individual's ability to participate in the labor market with jobs that generate legitimate income.

1.1.3. Sustainable employment

According to the International Labor Organization (ILO, 2017), decent work “involves opportunities for productive and equitable employment, security of employment and social security for families, better prospects for human development and social inclusion, freedom of expression, organization and participation in decisions that affect their lives, and equal opportunities and treatment for men and women.” Decent work refers to four components, including employment, rights, protection and dialogue; these components are inseparable, interrelated and mutually supportive in establishing decent work for workers.

Decent work (ILO, 2013) is defined as work that is characterized by: (i) employment opportunities; (ii) adequate income and productive work; (iii) working hours; (iv) balance between work, family and personal life; (v) work that should be abolished; (vi) stability and security of employment; (vii) equal opportunities and treatment in employment; (viii) safe working environments; (ix) social security; and (x) social dialogue, employers and workers' representatives.

In this study, sustainable employment is understood as productive employment that provides a living income, has a labor contract, participates in and enjoys social insurance, and ensures safety at work.

1.1.4. Labor demand

In the labor market, labor demand is the amount of labor that employers are willing to hire in a certain period, under certain conditions (Tran Xuan Cau, Mai Quoc Chanh, 2013). Labor demand is a derived demand because it is determined by

determined based on the demand for output and service volume that the labor factor is used for

production or service provision.

Labor demand is understood as the number of workers that businesses are able and willing to hire at different wage levels in a certain period of time (Vu Kim Dung, Nguyen Van Cong, 2013). The total labor demand of the economy is the total demand for labor of the economy in a certain period, under certain conditions.

In this study, labor demand is understood as the number of workers for job positions that employers are able and willing to hire at different wage levels within a certain period of time and under certain conditions.

1.1.5. Theory on the impact of international trade on employment

The trend of international trade is increasingly expanding due to the increasing demand for consumption and use of goods globally, the exchange of goods and services between countries has promoted import and export activities in the international market. Adam Smith mentioned the trend originating from the behavior of consumers and producers "production, transportation and exchange" leading to the division of labor in society among related subjects. From there, the redistribution of resources according to the principle of comparative advantage can use resources more appropriately and effectively for production. The result is that the cost of input factors is lower than the value of final goods and services in the production process. In addition, consumers and producers benefit from a greater choice of product quality accompanied by cost minimization. Thus, opening the market in an open economy will promote national income and economic growth.

In fact, adjusting production factors to exploit comparative advantages may lead to the closure of some enterprises and the loss of jobs in some sectors of the economy. Trade liberalization (TDL) increases international trade flows in countries but may also be associated with the risk of job loss and job displacement. This shows that TDL will bring positive and negative effects on current and potential jobs in both quantity and quality in the economy.

Traditional international trade theories assume that countries' relative technological capabilities, endowments, factors of production such as capital, land, skilled and unskilled labor will determine the competitiveness of different economic sectors at the global level. Therefore, each country will take advantage of its existing advantages in some

export industries and competition between domestic and import industries. Export industries will expand production and increase labor demand, while import-competing industries will reduce domestic production and possibly risk job loss. But traditional trade models do not take into account the process of commercialization leading to job loss and job creation. It is assumed that all workers were employed before TDHTM and that displaced workers would automatically move to new jobs, the problem of trade-related unemployment does not arise (Mussa, 1978).

The Ricardan model is one of the first tests to determine the impact of trade on employment. According to this model, each country will export the product in which it has a certain advantage, that is, the price of domestic inputs is relatively lower than that of other countries (or has higher productivity). From there, trade helps each country expand the production of export goods, leading to labor being shifted from import industries to export industries. Thus, international trade helps countries take advantage of their comparative advantages in export industries, opening up employment opportunities for these industries and reducing employment in other industries. The net effect from trade activities can be positive or negative depending on the characteristics of the labor market, the increased efficiency from the trade liberalization process is expected with positive effects on employment when the country's production is more efficient (Krugman et al., 2011).

The impact of international trade on employment also depends on the characteristics of employment and domestic labor market policies before and after trade. In economies with a highly elastic labor supply, where labor supply is concentrated in rural areas, exporting firms can expand production by attracting low-cost labor from rural areas. This situation often occurs in developing countries and TDHTM will lead to an increase in employment opportunities for workers.

The interaction between labor market policies and trade policies has provided some explanations for the relationship between TDHTM and unemployment in the economy. Setting a minimum wage and lower than the equilibrium wage leads to excess supply and unemployment. If the group of workers being cut is mainly engaged in the import sector, TDHTM will further reduce the demand for this group of workers and the unemployment rate will increase (Brecher, 1974). In industrialized countries, the minimum wage for workers is lower than the wages that employers are willing to pay, so TDHTM can lead to increased unemployment of low-skilled workers.

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