Manufacturing Trade-Related Employment Growth: Self-Employed and Wage and Salary Earners in Comparative Perspective

By Armah, Bartholomew | Journal of Small Business Management, April 1995 | Go to article overview

Manufacturing Trade-Related Employment Growth: Self-Employed and Wage and Salary Earners in Comparative Perspective


Armah, Bartholomew, Journal of Small Business Management


U.S. initiatives geared at trade liberalization such as the North American Free Trade Agreement and the Uruguay Round of the General Agreement on Trade and Tariffs have spawned a host of research studies on the impact of trade policies on various groups in the domestic economy. However, the effect of international trade on the self-employed has been largely ignored, even though self-employment accounts for a significant proportion of the labor force - 13 percent in 1990. Following the halt in the decline in self-employment in the early 1970s, self-employment has exhibited remarkable growth. It increased almost twice as fast as wage and salary employment (12.1 percent versus 6.5 percent) during the 1972-76 period (Aronson 1991) and sustained a growth rate of 11 percent between 1983 and 1990. However, in comparison to large firms, the role of small firms on the international market has generally been limited in spite of their export potential. It is estimated that small- to medium-sized firms could potentially sell 51 percent of U.S. exports instead of their current share of 16 percent (Edmunds and Khoury 1986).

Using an input-output framework, this study explores the total effect of international trade on the employment trends of self-employed and wage and salary workers. Employment trends are measured by the percentage shift in trade-related employment between 1987 and 1990. Specifically, the study estimates the direct and indirect effects of hypothetical changes in sectoral export and import levels on self-employment and wage and salary employment in the 1987-1990 period. The percentage shift in net trade-related employment (between 1987 and 1990) is then estimated for both groups of workers. The study focuses on percentage shifts since wage and salary employment levels far exceed self-employment levels.

In addition to aggregate estimates for both wage and salary and self-employed workers, trade-related employment estimates are computed for the following categories of manufacturing industries: (1) industries that experienced an increase in positive net trade-related employment between 1987 and 1990; (2) industries that suffered a decline in positive net trade-related employment between 1987 and 1990; (3) industries that experienced an increase in negative net trade-related employment between 1987 and 1990; and (4) industries that experienced a decline in negative net trade-related employment between 1987 and 1990.

PROFITABILITY, EMPLOYMENT GROWTH, AND FIRM SIZE

The view that market share is the key to profitability is shared by several business strategists, including Buzzell, Gale, Sultan (1975). Indeed, the findings of several empirical studies (Shepherd 1972, Gale 1972, Ravenscraft 1983, Mueller 1986) are consistent with this view. Shepherd attributes the observed positive relationship between market share and profitability to market power. Gale (1972) and Gale and Branch (1982), on the other hand, base their explanations on the cost and price advantages of large firms. A common feature of these explanations is the assumption that both small and large firms engage in similar types of activities within their respective industries. However, Porter (1979 and 1980) and Caves and Porter (1977) argue that this need not be the case given the potential for systematic differences in the strategies of large and small businesses with respect to such aspects as capital intensity, product promotion, and research and development. In effect, smaller firms following specialist strategies and protected by mobility barriers can diminish or reverse the profit advantage of larger firms especially where both are engaged in different activities within industries. To the extent that profits and employment growth are positively correlated, these specialist strategies and mobility advantages should translate into relatively greater employment growth among small firms. In fact, in recent empirical research based on Federal Trade Commission (FTC) Line of Business (LB) data,(1) Schmalensee (1985) and Scott and Pascoe (1986) find that market share explains relatively little of the variance in profitability. …

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