Cutting the Losses: Reassessing the Costs of Import Competition to Workers and Communities

Abstract

This paper aims to clarify two issues related to the potential costs of international trade: How does import competition affect the risk of job loss and unemployment for exposed workers, and how does it affect local communities? At the individual level, I find that the risk of layoff and unemployment to workers in trade-exposed sectors is comparable — or even lower — than the risk to workers in non-traded sectors and that these risks have not increased during the period of more intense competition from Chinese imports. At the community level, Autor, Dorn and Hanson (2013) find that local areas have experienced slower job and wage growth and higher unemployment because of import competition with China. Upon analyzing their data, I conclude that their results are biased by the weaker macroeconomic performance of 2000-2007 relative to the 1990s, which played out differently across local areas. I first show that their models omit significant interaction effects between control variables and time periods. When I analyze cross-area economic changes — rather analyzing changes within and across areas — I find that most of the significant negative effects identified in the original analysis no longer hold, including effects on overall employment, labor force participation, and wage growth. During each period, import competition actually predicts an increase in average wages for manufacturing workers, as well as non-manufacturing workers during the 1990s period, and import competition predicts a shift toward college educated non-manufacturing jobs in the second period. Over the entire period, I find that purely domestic shocks better explain local employment and wage growth patterns. I conclude that foreign competition does not appear to elevate the risk of job loss to a greater extent than domestic competition, and people living in the communities most exposed to foreign competition are no worse off on average.

Keywords: Trade, Globalization, Deindustrialization, Labor Market Adjustment, Local Labor Markets, Displacement

JEL Classification: E24,F14, F16,L60, R12, R23, O14