International Trade and Job Polarization: Evidence at the Worker Level

Working Paper: NBER ID: w22315

Authors: Wolfgang Keller; Hle Utar

Abstract: This paper examines the role of international trade for job polarization– the decline in opportunities for mid-wage workers while those for high- and low-wage workers increase. With employer-employee matched data on virtually all workers and firms in Denmark between 1999 and 2009, we show that import competition has caused worker-level adjustments that lead to job polarization. When mid-wage workers adjust to the shock, highly educated and skilled workers end up in high-wage jobs whereas less educated workers end up in low-wage positions. We show that the specific tasks performed by a worker are central in determining trade’s impact, and workers performing manual tasks are the ones most affected regardless of how routine or non-routine these tasks are. Trade lets foreign workers compete against domestic workers, in contrast to technical progress which pits man versus machine country by country. Quantitatively, we find that job polarization through trade-induced worker adjustments is at least as strong as through technical change and offshoring.

Keywords: International Trade; Job Polarization; Worker-Level Adjustments

JEL Codes: F16; I24; J21

Causal Claims

Cause	Effect
Rising import competition from China due to quota removals (F69)	Significant reductions in midwage employment for affected workers (J63)
Significant reductions in midwage employment for affected workers (J63)	Increase in low-wage employment among these workers (J39)
Significant reductions in midwage employment for affected workers (J63)	Increase in high-wage employment among these workers (J39)
Rising import competition from China due to quota removals (F69)	Job polarization (J29)
Midwage workers with lower levels of education losing midwage jobs (F66)	More likely to end up in low-wage jobs (J79)
Import competition (F14)	Emergence of job polarization (F66)