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

39 Pages Posted: 21 Feb 2017  

Jonathan T. Rothwell

Gallup; George Washington University Institute of Public Policy

Date Written: March 22, 2017

Abstract

In any dynamic economy, there is a risk of job loss. Job loss resulting from foreign rather than domestic competition has come under intense scrutiny recently with Britain’s exit from the European Union and the election of Donald Trump as president of the United States. While economists generally conclude that trade is broadly enriching, recent works have brought attention to the costs of trade to workers and 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 with 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. I first show that their models omit significant interaction effects between control variables and time periods. When I analyze inter-local area economic changes — rather analyzing changes within and across areas — I fail to reject the null hypotheses that import competition has no negative effect on wage or employment growth, except employment growth within the manufacturing sector during the most recent period, or that it has no effect on many other outcomes for the average resident or worker in affected local areas, including labor force participation, intergenerational mobility, and mortality. During each period, import competition actually predicts an increase in average wages for manufacturing workers, as well as non-manufacturing 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

Suggested Citation

Rothwell, Jonathan T., Cutting the Losses: Reassessing the Costs of Import Competition to Workers and Communities (March 22, 2017). Available at SSRN: https://ssrn.com/abstract=2920188 or http://dx.doi.org/10.2139/ssrn.2920188

Jonathan T. Rothwell (Contact Author)

Gallup ( email )

901 F St NW
Washington, DC 20004
United States

George Washington University Institute of Public Policy ( email )

2121 I Street NW
Washington, DC 20052
United States

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