The China Syndrome - Jan Stuhler · PDF fileThe China Syndrome Local Labor Market Effects of...
Transcript of The China Syndrome - Jan Stuhler · PDF fileThe China Syndrome Local Labor Market Effects of...
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 15, 2015
Autor, Dorn, Hanson The China Syndrome April 15, 2015 1 / 19
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
Autor, Dorn, Hanson The China Syndrome April 15, 2015 2 / 19
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
Autor, Dorn, Hanson The China Syndrome April 15, 2015 2 / 19
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
Autor, Dorn, Hanson The China Syndrome April 15, 2015 2 / 19
IntroductionStylized facts
Pre-1990s limited impact trade on U.S. laborTrend decline in U.S. manufacturing employmentIncrease in import competition from China without an offsettingincrease in demand for U.S. exportsVariation in regional manufacturing employment in U.S. andwithin-manufacturing import
Autor, Dorn, Hanson The China Syndrome April 15, 2015 3 / 19
IntroductionStylized facts
Figure 1: China’s import penetration and U.S. manufacturing employment
Autor, Dorn, Hanson The China Syndrome April 15, 2015 4 / 19
Theoretical predictions
China experiencedProductivity growth: transition from central planning to a marketeconomyReduction 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 outputIncreased demand for goods in China
Autor, Dorn, Hanson The China Syndrome April 15, 2015 5 / 19
Theoretical predictions
China experiencedProductivity growth: transition from central planning to a marketeconomyReduction 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 outputIncreased demand for goods in China
Autor, Dorn, Hanson The China Syndrome April 15, 2015 5 / 19
Theoretical predictions
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
Autor, Dorn, Hanson The China Syndrome April 15, 2015 6 / 19
Theoretical predictions
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
Autor, Dorn, Hanson The China Syndrome April 15, 2015 6 / 19
Theoretical predictions
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 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
Autor, Dorn, Hanson The China Syndrome April 15, 2015 6 / 19
Theoretical predictions
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
Autor, Dorn, Hanson The China Syndrome April 15, 2015 6 / 19
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 )
Autor, Dorn, Hanson The China Syndrome April 15, 2015 7 / 19
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 )
Autor, Dorn, Hanson The China Syndrome April 15, 2015 7 / 19
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 )
Autor, Dorn, Hanson The China Syndrome April 15, 2015 7 / 19
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 countries
However, evidence that China’s export growth strongly related tofactor specific to China
Autor, Dorn, Hanson The China Syndrome April 15, 2015 8 / 19
Identification strategy
Instrument to identify supply-driven components of Chineseimports
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
Autor, Dorn, Hanson The China Syndrome April 15, 2015 8 / 19
Identification strategy
Instrument to identify supply-driven components of Chineseimports
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
Autor, Dorn, Hanson The China Syndrome April 15, 2015 8 / 19
Identification strategy
Instrument to identify supply-driven components of Chineseimports
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
Autor, Dorn, Hanson The China Syndrome April 15, 2015 8 / 19
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
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
Autor, Dorn, Hanson The China Syndrome April 15, 2015 9 / 19
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
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
Autor, Dorn, Hanson The China Syndrome April 15, 2015 9 / 19
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
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
Autor, Dorn, Hanson The China Syndrome April 15, 2015 9 / 19
Benchmark estimationResults with no controls
Negative effect import exposure on manufacturing employment in CZ
Autor, Dorn, Hanson The China Syndrome April 15, 2015 10 / 19
Benchmark estimationResults with no controls
No evidence reverse causality
Autor, Dorn, Hanson The China Syndrome April 15, 2015 10 / 19
Benchmark estimationAugmented regression
Robust effect import exposure
Autor, Dorn, Hanson The China Syndrome April 15, 2015 11 / 19
Benchmark estimationAugmented regression
Larger decline in manufacturing employment in CZs with greater initialmanufacturing employment share
Autor, Dorn, Hanson The China Syndrome April 15, 2015 11 / 19
Benchmark estimationAugmented regression
with smaller initial foreign born
Autor, Dorn, Hanson The China Syndrome April 15, 2015 11 / 19
Benchmark estimationAugmented regression
with higher employment in routine-task occupations
Autor, Dorn, Hanson The China Syndrome April 15, 2015 11 / 19
Labor Market effects estimationReallocation of worker
No evidence that shocks to local manufacturing lead to change inpopulation
Autor, Dorn, Hanson The China Syndrome April 15, 2015 12 / 19
Labor Market effects estimationReallocation of worker
If mobility response is large, unlikely to find indirect effects of tradeon local labor markets
No robust evidence that shocks to local manufacturing lead tosubstantial change in population
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, transfers andhouse price bear part of the incidence of labor demand shocks
Autor, Dorn, Hanson The China Syndrome April 15, 2015 13 / 19
Labor Market effects estimationReallocation of worker
If mobility response is large, unlikely to find indirect effects of tradeon local labor marketsNo robust evidence that shocks to local manufacturing lead tosubstantial change in population
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, transfers andhouse price bear part of the incidence of labor demand shocks
Autor, Dorn, Hanson The China Syndrome April 15, 2015 13 / 19
Labor Market effects estimationLabor force
Reduction in manufacturing employment no offset by a risenon-manufacturing employment
Autor, Dorn, Hanson The China Syndrome April 15, 2015 14 / 19
Labor Market effects estimationLabor force
Rise in unemployment and labor force non-participants
Autor, Dorn, Hanson The China Syndrome April 15, 2015 14 / 19
Labor Market effects estimationLabor force
More pronounced effects for no college adults
Autor, Dorn, Hanson The China Syndrome April 15, 2015 14 / 19
Labor Market effects estimationLabor force
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 unemploymentand 3/4 because of higher non-participation
Autor, Dorn, Hanson The China Syndrome April 15, 2015 15 / 19
Labor Market effects estimationWages
General negative effect import exposure on average weekly earningsbut no significant effects on manufacturing wages
Autor, Dorn, Hanson The China Syndrome April 15, 2015 16 / 19
Labor Market effects estimationWages
Decrease wages in non-manufacturing sectors
Autor, Dorn, Hanson The China Syndrome April 15, 2015 16 / 19
Labor Market effects estimationWages
Partial and incomplete labor market adjustmentsLabor and product markets are not sufficiently integratedManufacturing wages are downwardly rigidNon-manufacturing subject to negative demand shocks and positivelabor supply shocksGE effect within but not across local labor markets labor markets
Substantial increase in transfer payments: disability, medical,income assistance, unemployment benefits
Autor, Dorn, Hanson The China Syndrome April 15, 2015 17 / 19
Robustness checks
Results are robust toDifferent measures of trade exposure
Include 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)
Drop of housing and construction sectors, computer industry andconsumer good industriesAdding other low-income countries
Autor, Dorn, Hanson The China Syndrome April 15, 2015 18 / 19
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 adjustmentsEstimated deadweight loss due to involuntary employment isbetween 87 $ and 137 $ per capita
Autor, Dorn, Hanson The China Syndrome April 15, 2015 19 / 19
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 adjustmentsEstimated deadweight loss due to involuntary employment isbetween 87 $ and 137 $ per capita
Autor, Dorn, Hanson The China Syndrome April 15, 2015 19 / 19
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 adjustmentsEstimated deadweight loss due to involuntary employment isbetween 87 $ and 137 $ per capita
Autor, Dorn, Hanson The China Syndrome April 15, 2015 19 / 19
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
Estimated deadweight loss due to involuntary employment isbetween 87 $ and 137 $ per capita
Autor, Dorn, Hanson The China Syndrome April 15, 2015 19 / 19
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 adjustmentsEstimated deadweight loss due to involuntary employment isbetween 87 $ and 137 $ per capita
Autor, Dorn, Hanson The China Syndrome April 15, 2015 19 / 19