Working Paper: NBER ID: w21027
Authors: Avraham Ebenstein; Ann Harrison; Margaret McMillan
Abstract: We suggest that the impact of globalization on wages has been missed because its effects must be captured by analyzing occupational exposure to globalization. In this paper, we extend our previous work to include recent years (2003-2008), a period of increasing import penetration, China’s entry into the WTO, and growing US multinational employment abroad. We find significant effects of globalization, with offshoring to low wage countries and imports both associated with wage declines for US workers. We present evidence that globalization has led to the reallocation of workers away from high wage manufacturing jobs into other sectors and other occupations, with large declines in wages among workers who switch, explaining the large differences between industry and occupational analyses. While other research has focused primarily on China’s trade, we find that offshoring to China has also contributed to wage declines among US workers. However, the role of trade is quantitatively much more important. We also explore the impact of trade and offshoring on labor force participation rates. While offshoring to China has a negative impact on US labor force participation, other factors such as increasing computer use and substitution of capital for labor are significantly more important determinants of US employment rates across occupations.
Keywords: globalization; wages; offshoring; trade; China
JEL Codes: F16; F66
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| offshoring to low-wage countries (F66) | wage declines for U.S. workers (J31) |
| ten percentage point increase in occupational exposure to import competition (F66) | 27% decline in real wages for workers in routine occupations (F66) |
| offshoring to China (F23) | wage declines for U.S. workers (J31) |
| imports from China (F14) | 56% wage decline for affected occupations (F66) |
| offshoring (F23) | raises skilled worker wages (J31) |
| offshoring (F23) | lowers unskilled worker wages (F66) |
| switching from manufacturing to services (O14) | significant loss in wages (J17) |
| occupational exposure to globalization (F66) | downward pressure on wages (F66) |