Is employment in export industries more volatile than employment in industries oriented toward the domestic market?
Excerpt from the "Bank of Israel – Annual Report for 2013" to be published soon: Is employment in export industries more volatile than employment in industries oriented toward the domestic market?
- The employment level in export industries is more volatile than in domestic-market oriented industries.
- Despite this, due to the dynamism of the export industries, the personal employment situation in those industries is more stable than in the rest of the business sector.
Israeli exports are concentrated for the most part in high technology industries. The exports of those industries constitute more than 40 percent of total goods and services exports, excluding diamonds. In contrast with nontradable industries (domestic services, commerce and the construction industry), activity in which is influenced mainly by domestic factors, activity in export industries is affected by both domestic and external factors—some of which are unforeseen, such as demand from abroad, changes in the terms of trade and changes in the exchange rate. The multiplicity of factors affecting export industries increases the volatility of their output, which should lead to volatility in employment. It is expected that in exporting industries there will be more frequent and wider-ranging changes in the size of the workforce than in the nontradable industries or in the domestic-oriented manufacturing industries.
In fact, an examination of employment data in the prominent export industries from 1996–2011, and a comparison of those data with employment data in the business sector industries whose activity is oriented toward the domestic market, shows that throughout the examined years, export industries were characterized by greater volatility in labor inputs. In manufacturing, the volatility gap derives mainly from volatility in the number of employed persons, while in the services, both the number of employed persons and the average number of work hours per full-time employee are much more volatile than the parallel data in the domestic-market oriented industries. It seems that the exporting industries have the ability to adapt to changes in the economic environment and to respond to them rapidly, due to the elasticity of employment in those industries.
Despite the volatility of employment in export industries, the employment status of employees in those industries is more stable than that of other people employed in the business sector (see the Figure below). It seems that individuals who have lost their job in these industries manage to rapidly return to employment both due to the dynamism of the advanced industries and the relatively rapid expansion of employment in these industries, and due to certain personal qualities and a high level of education.
In order to assess the unique structural effect of export industries on the employment stability of those employed in those industries, we neutralized the effects of other factors that may have an impact on individuals’ success in maintaining employment continuity. For this purpose, we used a logit regression to estimate the probability of remaining employed or becoming unemployed as a function of the level of education, family and demographic characteristics of the individual, and employment in one of three groups of industries: the prominent export industries in manufacturing and services, domestic-market oriented manufacturing industries, and domestic-market oriented services industries.
The results indicate that even after taking the other factors into account, the probability of a person employed in the export industries remaining employed in the following quarter is 70 percent higher than the parallel data of a similar person employed in domestic-market oriented services, and 50 percent higher than a similar person employed in domestic-market oriented manufacturing. In contrast, the probability of becoming unemployed in manufacturing or in services oriented toward the domestic market is about 50 percent higher than the parallel data in the export industries.
 The ratio between the development of dollar prices of exports and dollar prices of imported raw materials.