Why are American Workers Getting Poorer? China, Trade and Offshoring

44 Pages Posted: 16 Mar 2015

See all articles by Avraham Ebenstein

Avraham Ebenstein

Hebrew University of Jerusalem - Department of Economics

Ann E. Harrison

University of Pennsylvania - Management Department; National Bureau of Economic Research (NBER)

Margaret McMillan

Tufts University - Department of Economics; International Food Policy Research Institute (IFPRI); National Bureau of Economic Research (NBER)

Date Written: March 2015

Abstract

We suggest that the impact of globalization on wages has been missed because its effects must be captured by analyzing occupational exposure to globalization. In this paper, we extend our previous work to include recent years (2003-2008), a period of increasing import penetration, China’s entry into the WTO, and growing US multinational employment abroad. We find significant effects of globalization, with offshoring to low wage countries and imports both associated with wage declines for US workers. We present evidence that globalization has led to the reallocation of workers away from high wage manufacturing jobs into other sectors and other occupations, with large declines in wages among workers who switch, explaining the large differences between industry and occupational analyses. While other research has focused primarily on China’s trade, we find that offshoring to China has also contributed to wage declines among US workers. However, the role of trade is quantitatively much more important. We also explore the impact of trade and offshoring on labor force participation rates. While offshoring to China has a negative impact on US labor force participation, other factors such as increasing computer use and substitution of capital for labor are significantly more important determinants of US employment rates across occupations.

Suggested Citation

Ebenstein, Avraham and Harrison, Ann E. and McMillan, Margaret, Why are American Workers Getting Poorer? China, Trade and Offshoring (March 2015). NBER Working Paper No. w21027. Available at SSRN: https://ssrn.com/abstract=2578875

Avraham Ebenstein (Contact Author)

Hebrew University of Jerusalem - Department of Economics ( email )

Israel

Ann E. Harrison

University of Pennsylvania - Management Department ( email )

The Wharton School
Philadelphia, PA 19104-6370
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Margaret McMillan

Tufts University - Department of Economics ( email )

Medford, MA 02155
United States

International Food Policy Research Institute (IFPRI) ( email )

1201 Eye St, NW,
Washington, DC 20005
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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