the china syndrome - uc3mmkredler/readgr/curcionautoretal13.pdf · the china syndrome local labor...

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 9, 2014

Autor, Dorn, Hanson The China Syndrome April 9, 2014 1 / 26

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. laborSmall imports from low-wage countries (only 9% U.S.manufacturing imports in 1991)

Trend decline in U.S. manufacturing employment (from 12.6% in1991 to 8.4% in 2007)Increase in import competition from China without an offsettingincrease in demand for U.S. exports

Imports raise to 28% in 2007 (China accounts for 89% growth)U.S. exports to China grew by much lessAmplification mechanism because of current account imbalancesbetween U.S. and China

Variation in regional manufacturing employment in U.S. andwithin-manufacturing import




Trend decline in U.S. manufacturing employment (from 12.6% in1991 to 8.4% in 2007)

Increase in import competition from China without an offsettingincrease in demand for U.S. exports






Trend decline in U.S. manufacturing employment (from 12.6% in1991 to 8.4% in 2007)Increase in import competition from China without an offsettingincrease in demand for U.S. exports





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


IntroductionLiterature- Trade shocks effects

1980s: modest effect trade on wage premium

1990s: grow literature in order to understand rising U.S. wageinequalities, focus on skill biased technical change2000s: predominant focus on wages and employment inmanufacturing industries or occupations

Satisfactory results if labor markets geographically integrated andfully competitive

Regional economies as unit of analysisBorjas and Ramey (1995), Chiquiar (2008), Topalova (2005, 2010)

Industry or occupation as unit of analysisBernard, Jensen and Schott (2006), Liu and Trefler (2008),Ebenstein et al. (2010)

Feenstra (2010)



1980s: modest effect trade on wage premium1990s: grow literature in order to understand rising U.S. wageinequalities, focus on skill biased technical change

2000s: predominant focus on wages and employment inmanufacturing industries or occupations




Feenstra (2010)



1980s: modest effect trade on wage premium1990s: grow literature in order to understand rising U.S. wageinequalities, focus on skill biased technical change2000s: predominant focus on wages and employment inmanufacturing industries or occupations




Feenstra (2010)






Industry or occupation as unit of analysis

Bernard, Jensen and Schott (2006), Liu and Trefler (2008),Ebenstein et al. (2010)

Feenstra (2010)







Feenstra (2010)


IntroductionLiterature

Growth in low-income country exports, China’s transition to marketeconomy and accession to WTO

Chen, Jin, and Yue (2010), Hsieh and Klenow (2009), Naughton(2007)

Assess gains and losses trade with low-income countriesGains

Broda and Weinstein (2006), Goldberg et al. (2010), Bloom, Dracaand Van Reenen (2009)

Efficiency lossesBroda and Weinstein (2006), Goldberg et al. (2010), Bloom, Dracaand Van Reenen (2009)

Regional adjustment to labor-market shocksIncomplete and slow mobility responses (lowest for non-collegeworkers)Topel (1986), Blanchard and Katz (1992), Glaeser and Gyourko(2005), Artuc, Chaudhuri and McLaren (2010), Dix-Carneiro (2011)


Theoretical predictions

China experience productivity growth (transition from centralplanning to a market economy) and a reduction 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 output(change in China’s export-supply capability)Increased demand for goods in China (change in expenditure inChina on each industry)

Model of tradeBased on monopolistic competition and variation in industry laborproductivity across countriesRegion i is a SOE, produce both traded and non-traded good




Increased competition in markets in which region i sells its output(change in China’s export-supply capability)

Increased demand for goods in China (change in expenditure inChina on each industry)





Increased competition in markets in which region i sells its output(change in China’s export-supply capability)Increased demand for goods in China (change in expenditure inChina on each industry)




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





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


Empirical strategy

Construction of the measure of local labor market exposure toimport competition

Identification strategyBenchmark results on manufacturing employmentOther labor market effectsAlternative measures of labor market exposureQuantitative assessment efficiency losses


Empirical strategy

Construction of the measure of local labor market exposure toimport competitionIdentification strategy

Benchmark results on manufacturing employmentOther labor market effectsAlternative measures of labor market exposureQuantitative assessment efficiency losses


Empirical strategy

Construction of the measure of local labor market exposure toimport competitionIdentification strategyBenchmark results on manufacturing employment

Other labor market effectsAlternative measures of labor market exposureQuantitative assessment efficiency losses


Empirical strategy

Construction of the measure of local labor market exposure toimport competitionIdentification strategyBenchmark results on manufacturing employmentOther labor market effects

Alternative measures of labor market exposureQuantitative assessment efficiency losses


Empirical strategy

Construction of the measure of local labor market exposure toimport competitionIdentification strategyBenchmark results on manufacturing employmentOther labor market effectsAlternative measures of labor market exposure

Quantitative assessment efficiency losses


Empirical strategy

Construction of the measure of local labor market exposure toimport competitionIdentification strategyBenchmark results on manufacturing employmentOther labor market effectsAlternative measures of labor market exposureQuantitative assessment efficiency losses


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 )


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 countriesHowever, 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







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


Identification strategyInstrument validity

Figure 2: Instrument validity - 2 stages correlationsAutor, Dorn, Hanson The China Syndrome April 9, 2014 12 / 26

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∆ ˆI PW ui t +X ′i tβ2 +ect

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

Assumptions: E [∆I PW oi t∆I PW ui t ] 6= 0;E [∆I PW oi t ect ] = E

[X ′

i t ect]= 0

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


Benchmark estimation

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∆ ˆI PW ui t +X ′

i tβ2 +ect

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

Assumptions: E [∆I PW oi t∆I PW ui t ] 6= 0;E [∆I PW oi t ect ] = E

[X ′

i t ect]= 0

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


Benchmark estimationResults with no controls

Figure 3: Benchmark estimation - no controls


Benchmark estimationAugmented regression

Figure 4: Benchmark estimation - augmented model


Benchmark estimationResults

Chinese import competition explains 21 percent of declinemanufacturing employment in U.S. from 1991 to 2007 (982thousand workers)Results robust to drop of housing and construction sectors,computer industry and consumer good industriesNo change estimation by adding other low-income countries


Labor Market effects estimationReallocation of worker

Figure 5: Reallocation of workers estimation



If mobility response is large, unlikely to find indirect effects of tradeon local labor markets (initial local impact will rapidly diffuseacross regions)

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

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 and transfersand house price bear part of the incidence of labor demand shocks



If mobility response is large, unlikely to find indirect effects of tradeon local labor markets (initial local impact will rapidly diffuseacross regions)No robust evidence that shocks to local manufacturing lead tosubstantial change in population

Several explanationsShocks 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 and transfersand house price bear part of the incidence of labor demand shocks



If mobility response is large, unlikely to find indirect effects of tradeon local labor markets (initial local impact will rapidly diffuseacross regions)No robust evidence that shocks to local manufacturing lead tosubstantial change in populationSeveral explanations





Shocks to manufacturing from China too small to affect outcomes inbroader CZ

Good markets very well integrated nationally, local labor marketsadjust without a mobility responseCost of moving geographically and between sectors and transfersand house price bear part of the incidence of labor demand shocks




Shocks to manufacturing from China too small to affect outcomes inbroader CZGood markets very well integrated nationally, local labor marketsadjust without a mobility response

Cost of moving geographically and between sectors and transfersand house price bear part of the incidence of labor demand shocks


Labor Market effects estimationLabor force

Figure 6: Labor force estimation



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

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 unemployment and3/4 because of higher non-participation

More pronounced effects for no college adults



Reduction in manufacturing employment no offset by a risenon-manufacturing employment1000$ 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 unemployment and3/4 because of higher non-participation

More pronounced effects for no college adults


Labor Market effects estimationWages

Figure 7: Wage estimation

General negative effect import exposure on average weekly earnings


Labor Market effects estimationWages

Partial and incomplete labor market adjustmentsLabor and product markets are not sufficiently integrated (shock tolocal manufacturing decrease total CZ employment)Manufacturing wages are downwardly rigidNon-manufacturing subject to negative demand shocks and positivelabor supply shocksGE effect within but not across local labor markets labor markets


Labor Market effects estimationTransfers and income

Figure 8: Transfer estimation

Negative total effect on total income considering change in wage,business invest and transfers


Alternative measures of trade exposure

Results are robust to different measures of trade exposureInclude 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)


Assess efficiency losses

Not assess gains trade with low-income countriesConsumers: lower product prices or increased varietiesFirms: lower input prices, greater varieties and higher invest ininnovation

Deadweight loss associated with government transfersAnnual per capita transfers increase by 58 $ for every 1000 $ ofadditional import exposure per workerGruber (2010): estimation of marginal excess burden of taxationrequired to fund transfers is 40 cents on the DollarRange of deadweight losses range from 22 $ to 44 $

Involuntary reductions in labor force participationDeadweight losses if the market wage of involuntary displacedworkers exceeds their value of leisureEstimated deadweight loss due to involuntary employment isbetween 87 $ and 137 $


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 adjustmentsRobust results


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 adjustmentsRobust results


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 adjustmentsRobust results


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

Robust results


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 adjustmentsRobust results


the china syndrome - uc3mmkredler/readgr/curcionautoretal13.pdf · the china syndrome local labor...

Documents