Services trade, the IT revolution, and occupational tasks

Giordano Mion, Andrea Ariu 25 February 2012

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We live in the era of services. Only fifty years ago the service sector represented 30% of GDP and a negligible share of trade while it now accounts for 75% of GDP and 20% of total world trade (Francois and Hoekman 2010). Services are the fastest growing component of trade over the past years, with a two-digit average annual growth rate. In our country of analysis, Belgium, during the period 1995–2005 the number of exporters of services has more than doubled and the total value of service exports has increased by 244%. Why has services trade been increasing so dramatically?

Information technology and trade in services

A widespread view is that the diffusion of information technology (IT) and the Internet have expanded the range of internationally tradeable service products. Quoting Blinder (2009), Information and communications technology keeps getting both better and cheaper”, thus increasing the scope for trade in services. Accordingly, Freund and Weinhold (2002) argue, using cross-country data, that Internet diffusion is an important factor in explaining the increase in the aggregate value of trade in services. The underlying idea is that, by reducing drastically communication and coordination costs, IT dismantles historical trading hurdles for services, thus creating new opportunities for services to be traded over the web. Examples of this phenomenon are Indian firms selling call-centre services to the US and South African medical centres offering X-ray readings and medical services online.

Occupational tasks

Workers today perform tasks rather different from what they used to do twenty years ago. On the one hand Autor and Acemoglu (2011), Autor et al (2003), and Spitz-Oener (2006) show that technological change has been a key driving force in shaping the evolution of the tasks performed by workers, both across and within occupations. In particular, technological change is a substitute for routine tasks like calculating, measuring, storing, and retrieving and a complement for non-routine tasks like problem solving, negotiating, and using and interpreting rules.

On the other hand, there are reasons to believe that some features of the current globalisation wave are closely related to these changes in tasks (Baldwin and Robert-Nicoud 2010). In particular, Becker et al (2009) show that offshoring (defined as having affiliates abroad) has a statistically significant impact on the onshore workforce composition. In particular, offshoring is associated with a shift towards more non-routine and more interactive tasks, and towards highly educated workers. The question of how and whether occupational task changes are also related to the services trade boom has not been explored so far.

What we do

In Ariu and Mion (2011) we use services-trade data for Belgium, along with measures of tasks and IT use and their changes constructed from German workers’ data, to investigate the relationship between occupational tasks changes, the change in the use of IT, and the rise of services trade. Our analysis focuses on the extensive margin side of the issue, ie, the change in the number of services-trading firms over the period 1995–2005. Our results uncover a rich pattern linking occupational task changes and the increase in firms’ participation in services trade while at the same time questioning the common view about IT diffusion and the rise of services trade.

Empirical evidence

The most striking feature of our results is that changes in occupational tasks display an extremely consistent relationship with participation in services trade across different firm groups, pointing to strong churning effects. The change in analytical (interactive and routine cognitive) task intensity has a positive impact across the board; ie in industries characterised by larger changes, firms experienced higher likelihood of both entry and exit.

The negative effect of the change in interactive tasks on services-export participation echoes findings in Oldenski (2010). She finds that the more the production and/or provision of a particular service is intensive in direct communication with customers, the lower the probability of engaging in export activities as opposed to FDI. Broadly speaking, both Oldenski (2010) and our findings highlight the special role that proximity between demand and supply plays for services.

Our estimations further suggest that the change in IT use does not translate into a significantly higher or lower firm participation in export of services. This is because the IT change embeds both the negative impact of interactive and routine cognitive task changes and the positive impact of the change in analytical tasks. On balance, technological change does not seem a key underlying force behind the increase in the extensive margin of services exports. On the other hand, our estimations are consistent with offshoring being a key factor contributing to the rise of services trade. Moreover, the overall pattern and significance of changes in task intensitiy are little affected by considering other forces like comparative advantage or services-trade liberalisation.

What are these other factors driving changes in occupational task intensity other than IT use and offshoring? By comparing the evolution of the extensive margin between trade in goods and trade in services we show that a shift in consumers’ preferences towards goods and services whose production and distribution differ systematically in task intensity is not a straightforward answer. We look forward to future research in this direction.

References

Ariu, A and G Mion (2011), “Services trade and Occupational Tasks: An Empirical Investigation”. CEPR Discussion Paper 8761.

Autor, D and D Acemoglu (2011), “Skills, Tasks and Technologies: Implications for Employment and Earnings” in Ashenfelter, O and DE Card, eds, Handbook of Labor Economics 4B(124): 1043–1171. Amsterdam: Elsevier.

Autor, D, F Levy, RJ and Murnane (2003), “The Skill Content of Recent Technological Change: an Empirical Exploration”, Quarterly Journal of Economics 118(4):1279–1333.

Baldwin, R and Robert-Nicoud, F (2010), “Trade-in-Goods and Trade-in-Tasks: An Integrating Framework”, CEPR Discussion Paper 7775.

Becker, SO, K Ekholm, and M-A Muendler (2009), “Offshoring and the Onshore Composition of Tasks and Skills” CEPR Discussion Paper 7391.

Blinder, AS (2009), “How Many U.S. Jobs Might Be Offshorable?” The World Economics 10(2): 41–78.

Francois, JJ and B Hoekman (2010), “Services Trade and Policy”, Journal of Economic Literature 48(3):642–92.

Freund, C and D Weinhold (2002), “The Internet and International Trade in Services”, American Economic Review 92(2): 236–40.

Oldenski, L (2010), “Export Versus FDI: A Task-Based Framework for Comparing Manufacturing and Services”, mimeo, Georgetown University.

Spitz-Oener, A (2006), “Technical Change, Job Tasks, and Rising Educational Demands: Looking Outside the Wage Structure”, Journal of Labor Economics 24(2): 235–70.

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Topics:  International trade

Tags:  IT, offshoring, Belgium, trade in services

Professor in International Trade, Department of Economics, University of Sussex, and Research Affiliate, CEPR

Post-doctoral fellow, Geneva School of Economics and Management

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