Labor Embodied in Trade: The Role of Labor and Energy Productivity and Implications for Greenhouse Gas Emissions

Global production chains carry environmental and socioeconomic impacts embodied in each traded good and service. Even though labor and energy productivities tend to be higher for domestic production in high-income countries than those in emerging economies, this difference is significantly reduced for consumption, when including imported products to satisfy national demand. The analysis of socioeconomic and environmental aspects embodied in consumption can shed a light on the real level of productivity of an economy, as well as the effects of rising imports and offshoring. This research introduces a consumption-based metric for productivity, in which we evaluate the loss of productivity of developed nations resulting from imports from less-developed economies and offshoring of labor-intensive production. We measure the labor, energy, and greenhouse gas emissions footprints in the European Union's trade with the rest of the world through a multiregional input-output model. We confirm that the labor footprint of European imports is significantly higher than the one of exports, mainly from low-skilled, labor-intensive primary sectors. A high share of labor embodied in exports is commonly associated with low energy productivities in domestic industries. Hence, this reconfirms that the offshoring of production to cheaper and low-skilled, labor-abundant countries offsets, or even reverts, energy efficiency gains and climate-change mitigation actions in developed countries.