Employment Effects of International Trade

Workers bear substantial costs as a result of the "shock" of rising import competition.

In the past two decades, China's manufacturing exports have grown dramatically, and U.S. imports from China have surged. While there are many reports of plant closures and employment declines in sectors where import competition from China and elsewhere has been strongest, there is little evidence on the long-run effect on workers. In Trade Adjustment: Worker Level Evidence (NBER Working Paper No. 19226), David Autor, David Dorn, Gordon Hanson, and Jae Song examine the impact of exposure to rising trade competition from China on the employment and earnings trajectory of U.S. workers between 1992 and 2007. They find that workers bear substantial costs as a result of the "shock" of rising import competition. The adjustment to such shocks is highly uneven across workers, and varies according to their previous conditions of employment.

Individuals who in 1991 worked in manufacturing industries that experienced high subsequent import growth earned lower cumulative earnings over the 1992-2007 period, and they were at elevated risk of exiting the labor force and obtaining public disability benefits. The difference between a manufacturing worker at the 75th percentile of industry trade exposure and one at the 25th percentile of exposure amounted to reduced earnings equal to 46 percent of initial yearly income. Trade exposure also increased job churning across firms, industries, and sectors. Workers in sectors highly exposed to trade with China spent less time working for their initial employers, less time in their initial two-digit manufacturing industries, more time working elsewhere in manufacturing, and more time working outside of manufacturing.

The authors find that both the degree of job churn and the way earnings and employment adjust to import shocks differ substantially across demographic groups. Earnings losses are larger for individuals with low initial wages, low initial tenure, low attachment to the labor force, and for those employed at large firms with low wage levels. Losses for workers with high initial earnings are generally quite modest. For a given size import shock, high wage workers experience a larger reduction in their earnings and employment with their initial employer compared to low wage workers. However, for high skill workers separations are more likely to be voluntary, and are less likely to take place as part of a mass layoff, so initial losses are offset by gains in subsequent jobs. Low-wage workers tend to stay longer in their initial trade-exposed firms and industries, are more likely to separate from their initial firm during mass layoffs, and incur greater losses of earnings both at the initial firm and after moving to other employers.

--Claire Brunel