Friday, May 18, 2012

Paper on labor market competition

This paper paints a picture of a zero-sum game for labor in the global economy: more imports from China equals declining manufacturing employment and wages in the U.S., with the social safety net partially compensating for the shift.  The China Syndrome: Local Labor Market Effects of Import Competition in the United States, by David H. Autor, David Dorn, and Gordon H. Hanson.  Abstract:
We analyze the effect of rising Chinese import competition between 1990 and 2007 on local U.S. labor markets, exploiting cross-market variation in import exposure stemming from initial differences in industry specialization while instrumenting for imports using changes in Chinese imports by industry to other high-income countries. Rising exposure increases unemployment, lowers labor force participation, and reduces wages in local labor markets. Conservatively, it explains one-quarter of the contemporaneous aggregate decline in U.S. manufacturing employment. Transfer benefits payments for unemployment, disability, retirement, and healthcare also rise sharply in exposed labor markets.
The paper starts with "trade theory identifies low-wage countries as a likely source of
disruption to high-wage labor markets," shows that "increased exposure to low-income country imports is associated with rising unemployment, decreased labor-force participation, and
increased use of disability and other transfer benefits, as well as with lower wages, in affected local
labor markets," and says the U.S. social safety net absorbs the loss: "federally
funded transfer programs, such as Social Security Disability Insurance (SSDI), implicitly insure U.S.
workers against trade-related employment shocks."

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