Working Paper: NBER ID: w21906
Authors: David H. Autor; David Dorn; Gordon H. Hanson
Abstract: China’s emergence as a great economic power has induced an epochal shift in patterns of world trade. Simultaneously, it has challenged much of the received empirical wisdom about how labor markets adjust to trade shocks. Alongside the heralded consumer benefits of expanded trade are substantial adjustment costs and distributional consequences. These impacts are most visible in the local labor markets in which the industries exposed to foreign competition are concentrated. Adjustment in local labor markets is remarkably slow, with wages and labor-force participation rates remaining depressed and unemployment rates remaining elevated for at least a full decade after the China trade shock commences. Exposed workers experience greater job churning and reduced lifetime income. At the national level, employment has fallen in U.S. industries more exposed to import competition, as expected, but offsetting employment gains in other industries have yet to materialize. Better understanding when and where trade is costly, and how and why it may be beneficial, are key items on the research agenda for trade and labor economists.
Keywords: China Shock; Labor Market Adjustment; Trade Shocks
JEL Codes: F14; J23; J31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Heightened import penetration (F14) | Increased plant exits (J63) |
| Heightened import penetration (F14) | Reductions in employment among surviving firms (J63) |
| Increased import competition from China (F69) | Slow and incomplete labor market adjustment (J48) |
| Trade exposure (F14) | Local demand spillovers (R22) |
| Increased import competition from China (F69) | Significant reductions in employment in U.S. manufacturing industries (F66) |