New research: Chinese imports have not created mass job losses

In 2013, Autor et al. released a ground-breaking paper titled, “The China Syndrome: Local Labor Market Effects of Import Competition in the United States” in the American Economic Review. Using data from 1990 through 2007 and measures of import exposure across US labor markets, the economists found that, “Rising [Chinese] imports cause higher unemployment, lower labor force participation, and reduced wages in local labor markets that house import-competing manufacturing industries.”

In other words, local labor markets more exposed to Chinese import competition fared economically worse than those that experienced less exposure.

Two years later, Acemoglu et al. (2015) built off Autor et al. (2013) and provided estimates that Chinese import competition had resulted in 2 million job losses, on net, in the United States from 1999-2011. These findings called into question the conventional economic wisdom that labor markets would equilibrate in response to trade shocks, mitigating or eliminating job losses resulting from foreign competition.

Although the authors of both these papers have argued that protectionism makes countries poorer in the long-run, their results suggest that the short-run costs of free trade are much greater than was previously believed by economists, and protectionists have used these papers to argue that free trade should be done away with.

However, new evidence suggests that the conclusions of these papers was wrong. Jonathan Rockwell, a senior economist at Gallup, re-examined the data and came to the conclusion that Autor et al’s results were, “biased by the weaker macroeconomic performance of 2000-2007 relative to the 1990s.” After correcting for this bias, the Autor et al. results essentially disappear.

He also re-estimated Acemoglu et al.’s results, and concludes that there are, “not significant effects of import competition on average pay per worker or on employment growth. The coefficient is actually positive but insignificant for employment growth. I do find evidence that establishment growth is significantly higher, suggesting an increase in entrepreneurial activity in response to import competition.

(Read more about Rockwell vs. Autor et al)

In addition to Rockwell’s paper comes new research from Ildiko Magyari. She examined the net effect of Chinese imports on firm-level employment rather than employment across local labor markets. This is because, even though Chinese import competition may reduce employment at individual establishments (in some local labor markets) they may simultaneously reduce the cost of production and allow firms to expand employment in industry in which the US has a comparative advantage.

After taking these effects into account, she concludes that, “although Chinese imports may have reduced employment within some establishments, these losses were more than offset by gains in employment within the same firms. Contrary to conventional wisdom, firms exposed to greater Chinese imports created more manufacturing and nonmanufacturing jobs than non-exposed firms.”

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