The China Syndrome - Jan Stuhler · PDF fileThe China Syndrome Local Labor Market Effects of Import Competition in the United States David H. Autor, David Dorn, and Gordon H. Hanson

The China SyndromeLocal Labor Market Effects of Import Competition in the United States

David H. Autor, David Dorn, and Gordon H. Hanson

AER, 2013

presented byFederico Curci

April 15, 2015

Autor, Dorn, Hanson The China Syndrome April 15, 2015 1 / 19

IntroductionResearch question

Study the effect of Chinese import competition between 1990 and2007 on U.S. local labor markets

Treat local labor markets as sub-economies subject to differentialtrade shocks according to initial patters of industry specialization

Expand analysis of effect trade to non-wage variablesEmployment, unemployment, participation, wages, income, mobility,and transfers

Develop robust instrument variable approach














IntroductionStylized facts

Pre-1990s limited impact trade on U.S. laborTrend decline in U.S. manufacturing employmentIncrease in import competition from China without an offsettingincrease in demand for U.S. exportsVariation in regional manufacturing employment in U.S. andwithin-manufacturing import


IntroductionStylized facts

Figure 1: China’s import penetration and U.S. manufacturing employment


Theoretical predictions

China experiencedProductivity growth: transition from central planning to a marketeconomyReduction in its trade costs: accession to WTO

Effect to labor market of U.S. region i?Increased competition in markets in which region i sells its outputIncreased demand for goods in China



China experiencedProductivity growth: transition from central planning to a marketeconomyReduction in its trade costs: accession to WTO

Effect to labor market of U.S. region i?Increased competition in markets in which region i sells its outputIncreased demand for goods in China



Positive shock to China’s export supplyDecrease region i’s wage and employment in traded goodsIncrease in employment in non-traded

Positive shock to China’s import demandIncrease region i’s wage and employment in traded goodsDecrease in employment in non-traded

Final effect depend on trade imbalanceFocus on import competition in U.S.

U.S. imports from China vastly exceed U.S. exports to ChinaU.S. market accounts for large majority of demand for most U.S.industries











Final effect depend on trade imbalance

Focus on import competition in U.S.U.S. imports from China vastly exceed U.S. exports to ChinaU.S. market accounts for large majority of demand for most U.S.industries








Local labor market exposure to import competition

∆I PWui t =∑j

Li j t

Lu j t

∆Muc j t

Li t

Variation IPW caused byConcentration employment in manufacturing or non-manufacturingSpecialization in import-intensive industries within localmanufacturing

BiasRealized U.S. imports from China correlated with unobservedshocks to U.S. product demand and U.S. employmentNeed instrument for growth in Chinese imports in U.S. (∆I PW )



∆I PWui t =∑j

Li j t

Lu j t

∆Muc j t

Li t





∆I PWui t =∑j

Li j t

Lu j t

∆Muc j t

Li t




Identification strategy

Instrument to identify supply-driven components of Chineseimports

Chinese imports in eight other developed countries

Identification assumptionCommon within-industry component of rising Chinese imports toU.S. and other high-income countries stems from China’s risingcomparative advantage and/or falling trade sectors

Possible threatsProduct demand shocks may be correlated across high-incomecountriesU.S. productivity shocks may be driving growth in imports fromChinaGrowth in imports from China may reflect technology shocks thatadversely affect labor-intensive industries in high-income countries

However, evidence that China’s export growth strongly related tofactor specific to China




Chinese imports in eight other developed countriesIdentification assumption

Common within-industry component of rising Chinese imports toU.S. and other high-income countries stems from China’s risingcomparative advantage and/or falling trade sectors


















Benchmark estimation

Data sources (from 1991 to 2007): UN Comtrade, U.S. Census,American Community Survey, Bureau of Economic Analysis,Social Security Administration

2SLS model in first differenceSecond stage: ∆Lm

i t = γt +β1∆ Î PW ui t +X ′i tβ2 +ect

First stage: ∆ Î PW ui t = β̂3∆I PW oi t +εct

Demographic and labor force controlsShare of manufacturing in a CZ’s start-of-period employmentRegion dummyStart-of-period share of population with college education, foreignborn and working age womenSusceptibility of a CZ’s occupations to substitution by technology ortask offshoring



Data sources (from 1991 to 2007): UN Comtrade, U.S. Census,American Community Survey, Bureau of Economic Analysis,Social Security Administration2SLS model in first difference

Second stage: ∆Lmi t = γt +β1∆ Î PW ui t +X ′

i tβ2 +ect





Data sources (from 1991 to 2007): UN Comtrade, U.S. Census,American Community Survey, Bureau of Economic Analysis,Social Security Administration2SLS model in first difference

Second stage: ∆Lmi t = γt +β1∆ Î PW ui t +X ′

i tβ2 +ect




Benchmark estimationResults with no controls

Negative effect import exposure on manufacturing employment in CZ


Benchmark estimationResults with no controls

No evidence reverse causality


Benchmark estimationAugmented regression

Robust effect import exposure



Larger decline in manufacturing employment in CZs with greater initialmanufacturing employment share



with smaller initial foreign born



with higher employment in routine-task occupations


Labor Market effects estimationReallocation of worker

No evidence that shocks to local manufacturing lead to change inpopulation



If mobility response is large, unlikely to find indirect effects of tradeon local labor markets

No robust evidence that shocks to local manufacturing lead tosubstantial change in population

Shocks to manufacturing from China too small to affect outcomes inbroader CZGood markets very well integrated nationally, local labor marketsadjust without a mobility responseCost of moving geographically and between sectors, transfers andhouse price bear part of the incidence of labor demand shocks



If mobility response is large, unlikely to find indirect effects of tradeon local labor marketsNo robust evidence that shocks to local manufacturing lead tosubstantial change in population

Shocks to manufacturing from China too small to affect outcomes inbroader CZGood markets very well integrated nationally, local labor marketsadjust without a mobility responseCost of moving geographically and between sectors, transfers andhouse price bear part of the incidence of labor demand shocks


Labor Market effects estimationLabor force

Reduction in manufacturing employment no offset by a risenon-manufacturing employment



Rise in unemployment and labor force non-participants



More pronounced effects for no college adults



1000$ per worker increase in CZ’s import exposure reducesemployment to population ratio by 0.77 percent

3/4 because of loss in manufacturing and 1/4 because ofnon-manufacturing1/4 reduction in employment because of rise in unemploymentand 3/4 because of higher non-participation


Labor Market effects estimationWages

General negative effect import exposure on average weekly earningsbut no significant effects on manufacturing wages



Decrease wages in non-manufacturing sectors



Partial and incomplete labor market adjustmentsLabor and product markets are not sufficiently integratedManufacturing wages are downwardly rigidNon-manufacturing subject to negative demand shocks and positivelabor supply shocksGE effect within but not across local labor markets labor markets

Substantial increase in transfer payments: disability, medical,income assistance, unemployment benefits


Robustness checks

Results are robust toDifferent measures of trade exposure

Include competition in foreign marketsConsider that imports from China include both final goodspurchased by U.S. consumers and intermediate inputs purchasedby U.S. firmsConsider net import from ChinaApply gravity residual: replace growth in U.S. imports from Chinawith inferred change in China’s comparative advantageUse factor content of U.S. net imports from China (change in netimport of effective labor services)

Drop of housing and construction sectors, computer industry andconsumer good industriesAdding other low-income countries


Conclusions

Extend effects of import from low-income countries to local labormarkets

Effect Chinese import competition are through reducingmanufacturing employment, increasing unemployment, decline inwages, increase in transfer payments and reduction in averageearningsChinese import competition explains 21 percent of declinemanufacturing employment in U.S. from 1991 to 2007 (982thousand workers)Partial and incomplete labor market adjustmentsEstimated deadweight loss due to involuntary employment isbetween 87 $ and 137 $ per capita


Conclusions

Extend effects of import from low-income countries to local labormarketsEffect Chinese import competition are through reducingmanufacturing employment, increasing unemployment, decline inwages, increase in transfer payments and reduction in averageearnings

Chinese import competition explains 21 percent of declinemanufacturing employment in U.S. from 1991 to 2007 (982thousand workers)Partial and incomplete labor market adjustmentsEstimated deadweight loss due to involuntary employment isbetween 87 $ and 137 $ per capita


Conclusions

Extend effects of import from low-income countries to local labormarketsEffect Chinese import competition are through reducingmanufacturing employment, increasing unemployment, decline inwages, increase in transfer payments and reduction in averageearningsChinese import competition explains 21 percent of declinemanufacturing employment in U.S. from 1991 to 2007 (982thousand workers)

Partial and incomplete labor market adjustmentsEstimated deadweight loss due to involuntary employment isbetween 87 $ and 137 $ per capita


Conclusions

Extend effects of import from low-income countries to local labormarketsEffect Chinese import competition are through reducingmanufacturing employment, increasing unemployment, decline inwages, increase in transfer payments and reduction in averageearningsChinese import competition explains 21 percent of declinemanufacturing employment in U.S. from 1991 to 2007 (982thousand workers)Partial and incomplete labor market adjustments

Estimated deadweight loss due to involuntary employment isbetween 87 $ and 137 $ per capita


Conclusions

Extend effects of import from low-income countries to local labormarketsEffect Chinese import competition are through reducingmanufacturing employment, increasing unemployment, decline inwages, increase in transfer payments and reduction in averageearningsChinese import competition explains 21 percent of declinemanufacturing employment in U.S. from 1991 to 2007 (982thousand workers)Partial and incomplete labor market adjustmentsEstimated deadweight loss due to involuntary employment isbetween 87 $ and 137 $ per capita


Documents

The China Syndrome - Jan Stuhler · PDF fileThe China Syndrome Local Labor Market Effects of Import Competition in the United States David H. Autor, David Dorn, and Gordon H. Hanson