Working Paper: NBER ID: w5633
Authors: Robert Z. Lawrence; Carolyn L. Evans
Abstract: This study uses both a net factor content analysis and a small simulation model to explore the impact on the U.S. labor market of a fivefold increase in imports of manufactured goods from developing countries. The simulation, which is parameterized by the US economy in 1990, involves a balanced trade expansion which displaces almost half of US manufacturing workers who are reemployed in the remaining manufacturing and non-trade sectors. The results show that relative wages of workers with a high school education or less would be depressed, while those with some college education would rise. However, despite the magnitude of the shock, the effects are surprisingly small. Once account is taken of productivity increases, labor force growth and export sector wage premiums, given unitary elasticities of demand and of substitution between workers with different levels of education, relative wages of workers with some college education rise by 3.5 percent, while the real wages of workers with a high school education or less decline by 1.3 percent. The impact of a variety of parameter assumptions is also explored.
Keywords: Trade; Wages; Labor Market; Imports; Developing Countries
JEL Codes: F16; J31; J38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increased imports from developing countries (F69) | Displacement of U.S. manufacturing workers (F66) |
| Increased imports from developing countries (F69) | Decrease in relative wages for workers with a high school education or less (J39) |
| Increased imports from developing countries (F69) | Increase in relative wages for workers with some college education (J39) |
| Increased imports from developing countries (F69) | Overall small effects on wages due to productivity increases and labor market dynamics (J39) |
| Increased imports from developing countries (F69) | Changes in wage gap due to specialization of U.S. economy in skill-intensive products (F66) |
| Increased imports from developing countries (F69) | Impact on wages mediated by elasticity of demand and substitution between labor types (J29) |
| Increased imports from developing countries (F69) | Impact on wages mediated by structure of the labor market (F66) |
| Displacement of U.S. manufacturing workers (F66) | Reemployment in remaining manufacturing and non-traded sectors (J68) |