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Cheap Imports and the Loss of US Manufacturing Jobs

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Abstract

This study examines the role of international trade and specifically imports from low-wage countries, in determining patterns of job loss in U.S. manufacturing industries between 1992 and 2007. Motivated by intuitions from factor-proportions-inspired work on offshoring and heterogeneous firms in trade, we build industry-level measures of import competition. Combining worker data from the Longitudinal Employer-Household Dynamics data set, detailed establishment information from the Census of Manufactures and transaction-level trade data, we find that rising import competition from China and other developing economies increases the likelihood of job loss among manufacturing workers with less than a high school degree; it is not significantly related to job losses for workers with at least a college degree.
Cheap Imports and the Loss of U.S. Manufacturing Jobs
Thomas Kemeny ∗†, David Rigby†† and Abigail Cooke††
Department of Geography & Environment, London School of Economics
††Department of Geography, UCLA
Please cite published version:
Kemeny, T., Rigby, D., & Cooke, A. (2014). Cheap Imports and the Loss of US
Manufacturing Jobs. The World Economy. DOI: 10.1111/twec.12238.
Abstract
This paper examines the role of international trade, and specifically imports from low-
wage countries, in determining patterns of job loss in U.S. manufacturing industries between
1992 and 2007. Motivated by intuitions from factor-proportions-inspired work on offshoring
and heterogeneous firms in trade, we build industry-level measures of import competition.
Combining worker data from the Longitudinal Employer-Household Dynamics dataset, de-
tailed establishment information from the Census of Manufactures, and transaction-level
trade data, we find that rising import competition from China and other developing econ-
omies increases the likelihood of job loss among manufacturing workers with less than a high
school degree; it is not significantly related to job losses for workers with at least a college
degree.
JEL Classification: F14; F15; F16; F6; J31
Keywords: international trade, import competition, job loss, inequality, manufacturing
Disclaimer: Any opinions and conclusions expressed herein are those of the author(s)
and do not necessarily represent the views of the U.S. Census Bureau. All results have been
reviewed to ensure that no confidential information is disclosed
Acknowledgements: Kemeny and Rigby gratefully acknowledge support from the Na-
tional Science Foundation Grant BCS-0961735; the authors also thank Olmo Silva and the
LSE Spatial Economics Research Center. This research uses data from the Census Bureau’s
Longitudinal Employer Household Dynamics Program, which was partially supported by
the following National Science Foundation Grants SES-9978093, SES-0339191 and ITR-
0427889; National Institute on Aging Grant AG018854; and grants from the Alfred P. Sloan
Foundation.
Corresponding author. Contact information: Department of Geography & Environment, London School of
Economics, Houghton Street, London, WC2A 2AE, UK; e-mail: t.e.kemeny@lse.ac.uk.
1
1 Introduction
During the 1960s, nearly one in three jobs in the U.S. were in manufacturing. As of January 2013,
less than 9 percent of all American workers held manufacturing jobs. Manufacturing’s relative
importance has undergone a sharp decline in most other high-wage developed economies as well,
including Britain, France, Germany, Italy and Japan.1In the U.S., as in many of these other
economies, the mid-20th century preponderance of well-paid manufacturing jobs underpinned
a society defined by its large middle class; the disappearance of these jobs has accompanied
large and persistent increases in wage inequality, particularly in terms of the gap between those
in the middle of the income distribution and those at the top (Autor et al., 2008). By the
early 1990s, the continued decline of manufacturing was linked to growing global integration; in
some quarters, ‘globalization’ became a synonym for a “giant sucking sound” of jobs allegedly
fleeing the U.S. in favor of Mexico and other low-wage labor markets. However, researchers
at that time concluded that there was simply not enough trade with low-wage economies to
produce the observed changes in the domestic labor market (Lawrence et al., 1993; Haskel and
Slaughter, 2001).2Though it was acknowledged that some production was relocating from
the U.S. to low-wage countries, the consensus view was that the chief cause of both rising
inequality and declining manufacturing employment was the widespread adoption of computers
in the workplace. Computers and other new technologies, researchers argued, were skill biased:
they complemented individuals whose jobs required high levels of skill and abstract thinking,
while they substituted for those performing routine, less-skill-intensive work, including many
workers on manufacturing production lines (Haskel and Slaughter, 2002; Levy and Murnane,
2004; Goos and Manning, 2007). This technology-based explanation remains highly influential
today (Edwards and Lawrence, 2013).
There is at least one major reason to re-consider the labor market impacts of international
trade. In a word: China. Accounting for just under 5% of the total value of U.S. imports from
low-wage economies in 1992, by 2007, imports from China had risen to 75%.3China’s growing
role occurred as imports from low-wage economies rose from a modest 9% of the total value of
U.S. imports in 1992 to 23% of total imports in 2007, and, in absolute terms, as overall U.S.
imports nearly tripled. In short, U.S. imports from low-wage countries have grown dramatically
in relative and absolute terms, and China is the primary driver of this change. Observing these
trends, a number of prominent researchers and public intellectuals have called for revisiting
the impact of trade on wages, job loss and overall welfare (Blinder, 2006; Krugman, 2008;
Feenstra, 2010). This call has been taken up in a new wave of empirical work examining how
low-wage import competition may be affecting wages, employment, long-term welfare, plant
survival, occupational structure (Bernard et al., 2006; Liu and Trefler, 2008; Ebenstein et al.,
2009; Autor et al., 2012b,a), but it has not investigated the links between trade and job loss.
This paper contributes to this empirical literature by examining the relationship between
low-wage import competition and manufacturing job loss. If imports from developing countries
1On the basis of industrial employment figures from the OECD STAN database (ISIC 15-37).
2Nor did the wage changes occur where standard trade theory predicted they would: across industries.
3Figures in this paragraph are authors’ calculations made using UN COMTRADE data, with low-wage coun-
tries defined according to World Bank classifications in 1992. See Table 1 for a list of countries. Values have
been deflated to base-year 2007.
2
are low-skill intensive, then growth in these imports should increase relative job loss in work of
a similar character in the U.S. In other words, rising imports from China and other low-wage
countries should result in job losses for American workers with low skill levels. Meanwhile,
the growth of low-wage imports may have neutral or even positive effects on more highly-
skilled workers, as the economy re-orients toward production that more closely resembles U.S.
comparative advantage. This differential job displacement could be the result of a number of
different processes. It might be driven by the closure of manufacturing establishments that
produce low-skill produce varieties Bernard et al. (2006). Alternatively, rather than shutting
down existing plants may simply shed much of their low-skill labor force as they concentrate
on high-sophistication varieties. It could also be the result of strategic decisions to shift the
boundaries of the firm’s domestic activities in response to shifting trade costs for particular tasks
in a vertical production chain (Grossman and Rossi-Hansberg, 2006, 2008; Baldwin, 2006).
Firms keep tasks subject to high trade costs onshore, while parts of the production process
capturing tasks for which trade costs are sufficiently low will be imported, either through arms-
length contracting or multinational subsidiary arrangements. To the extent that skilled work
is systematically associated with higher trade costs, firms could offshore low-skill tasks while
strengthening their specialization in functions that require higher skill levels. These different
‘task trade’ and ‘product variety’ explanations, each reflecting different dimensions of shifting
comparative advantage, could be simultaneously operating.
To explore the link between low-wage import competition and job loss, transaction-level
Census estimates of U.S. imports and exports are first used to estimate the extent to which in-
dividual U.S. manufacturing industries are exposed to import competition from low-wage coun-
tries. We then relate changes in import competition between 1992 and 2007 to the probability
of manufacturing job loss, conditional upon individual demographic and establishment-level
characteristics. We consider a worker to have lost her job between two periods when she both
switches establishments and suffers a decline in salary. We focus on two categories of work-
ers: low- and high-skill workers. Low skill workers are represented by those with less than a
high school degree, while the category of high-skill workers is represented using workers with at
least a Bachelor’s degree. Establishment-specific characteristics permit modeling of potential
heterogeneity in organizational responses to import competition.
The data to capture these individual-, establishment-, firm-, and industry-specific dynamics
comes from three restricted-use Census Bureau sources: the Foreign Trade Imports and Exports
data; the Longitudinal Employer–Household Dynamics (LEHD) database; and the Census of
Manufactures. The LEHD program integrates administrative records from state-specific un-
employment insurance (UI) programs with Census Bureau economic and demographic data,
providing a nearly universal picture of workers, employers, and their interaction in 30 U.S.
states (McKinney and Vilhuber, 2011). The Census of Manufactures, meanwhile, considerably
enriches the range of establishment characteristics available in LEHD. These data cover the uni-
verse of manufacturing establishments, with surveys conducted quinquennially in years ending
in 2 and 7. Among other important establishment characteristics, the Census of Manufactures
measures spending on computer equipment, such that we might distinguish between the ef-
fects of trade and technological change. Linked together, the trade, worker and establishment
3
datasets yield a panel covering 1992, 1997, 2002 and 2007.
In our preferred specifications, we account for potential endogeneity bias arising from the
possibility that imports are driven by labor demand shocks by instrumenting for import com-
petition using both an industry- and year-specific measure of low-wage imports into the EU-15,
and an industry-year measure of trade costs. Doing so, we find that workers with less than
a high-school degree are vulnerable to the rise of imports from low-wage economies, while job
security for those with at least a Bachelor’s degree is largely unrelated to both levels of and
changes in import competition. This differentiated result conforms to the theoretical explana-
tions guiding this research. In keeping with recent heterogeneous-firm extensions of the theory
of factor-proportions, as well as the literature on offshoring and task trade, growing imports
from China and other low-wage economies results in manufacturing job displacement among
those workers with low levels of education. It does not appear to threaten jobs held by more
highly-educated manufacturing workers.
The remainder of this paper is organized as follows. Section 2 describes the theory motivating
this inquiry, and reviews the findings of the existing empirical literature. Section 3 discusses
low-wage import competition and how it has changed over the study period. Section 4 describes
the empirical approach and the data. Section 5 presents results and Section 6 concludes.
2 Literature
A principal insight of the Heckscher-Ohlin (H-O) trade model is that, given a sufficiently open
world economy, countries should specialize in activities that reflect factors of production that
they hold in relative abundance. Assuming the U.S. is abundant in skilled labor, and low-wage
economies like China are abundant in unskilled labor, then a decline in trade costs should re-
orient production in the U.S. toward industries that intensively demand workers with higher
skill levels, while importing goods from China and other low-wage economies that intensively
require less-skilled workers.4Standard H-O models consider that such shifts in specialization
and trade occur at the scale of industries. But recent trade models emphasize within-industry
heterogeneity, product differentiation, and job search frictions which can nonetheless lead to
outcomes that are broadly in line with the theory of factor proportions (Melitz, 2003; Yeaple,
2005; Verhoogen, 2008; Helpman et al., 2010). Bernard et al. (2010), for instance, yield such
predictions by assuming that the intensity with which plants employ factors of production
signals the factor-intensity of the resulting goods. Concretely, this means that plants whose
input intensities reflect a country’s comparative advantage in skilled labor will be more resilient
in the face of low-wage import competition, while those that abundantly use low-skill labor
are likely to be most challenged. In a major empirical contribution, Bernard et al. (2006)
find that plant employment and survival are negatively related to the level of industry-specific
import competition, and within those industries, more capital-intensive plants are more likely
grow and survive. Moreover, they show that some plants respond to import competition by
switching industries, shifting to those that more intensively require capital and skill. All of this
suggests a ‘horizontal’ adjustment process to low-wage import competition that is consistent
4Assuming trade with such developing economies forms a large and/or growing proportion of total U.S. trade.
4
with factor proportions theory. Both within and between industries, employment shifts toward
products that better reflect U.S. comparative advantage. We should expect this adjustment
process to reduce manufacturing jobs for less-skilled workers whose wages will increasingly be,
in the words of Richard Freeman (1995), set in Beijing.
While the H-O model and its descendants emphasize that local industries or firms grow or
decline to the extent that they reflect comparative advantage, the recent ‘offshoring’ theoretical
framework takes a ‘vertical’ view in which the production process of a given good can be split
into a sequence or continuum of tasks, with each task subject to specific trade costs (Feenstra and
Hanson, 2001; Antr`as et al., 2006; Blinder, 2006; Baldwin, 2006; Grossman and Rossi-Hansberg,
2006, 2008). The theory of offshoring suggests that, on the basis of these activity-specific trade
costs, organizations will determine which stages of production to produce domestically and
which to offshore, with offshoring itself accomplished either within the organization through a
multinational affiliate or through arms-length transactions. While the results of these various
models are strongly dependent on assumptions regarding country size, preferences, the nature
of technological change, and the number of production factors, models like that of Grossman
and Rossi-Hansberg (2008) suggest that, following factor-proportions intuitions, organizations
should offshore those activities in which relevant factors are not held in relative abundance. In
the case of high-wage economies like the U.S., this means offshoring production tasks that are
intensive in their use of low-skill work. In these models, therefore, offshoring works in a manner
akin to technological innovation that replaces the work of low-skilled laborers (Feenstra, 2008).
Instead of mechanizing these workers’ labor, offshoring sends it abroad. Under this hypothesis,
demand for less-skilled workers will fall, and their employment and wages will decline relative
to employment and wages for highly skilled workers.
Substantial evidence supports this idea. Studies have related changes in industry-specific
measures of offshoring, sometimes restricted to the imports of intermediates from some defi-
nition of low-wage countries, to either the wage- or employment-share of skilled workers. In
survey of empirical work, Crin`o (2009) finds that, across more than 25 articles studying 11
firms and industries in high-wage countries, including the U.S., Canada, UK, France, and Ger-
many, offshoring to low-income economies is positively and significantly related to the share of
employment or wages (or both) of highly-skilled workers in high-wage countries. This result
is strongest for studies examining arms-length imports; it exists but is weaker in studies that
model the effects of intra-MNC production transfer, as distinct from broader trade flows (ibid).
Nonetheless, Harrison and McMillan (2011) show that the employment outcomes associated
with such transfers have employment impacts, and these impacts differ depending on whether
the production is being transferred to high- or low-income country affiliates. Specifically, the
authors find that transfers to low-income affiliates is associated with job losses in the U.S. While
this is not an uncontroversial finding, few studies in this area have had access to detailed worker
characteristics that would permit a sense of the kinds of jobs created or workers displaced.5
Among the few exceptions, Ebenstein et al. (2009) find that, while manufacturing wages are
not strongly affected by offshoring to low-wage countries, across educational categories, wage
5The aggregate employment effects of MNC offshoring is a controversial subject, with effects ranging from
positive (Brainard and Riker, 1997; Mankiw and Swagel, 2006; Navaretti et al., 2010), negative (Harrison and
McMillan, 2006, 2011) and none (Braconier and Ekholm, 2000).
5
effects for workers who leave their manufacturing jobs are high.
Direct links between imports or offshoring and job loss have been less well studied. Looking
at U.S. manufacturing industries over the period 1977–1987, Revenga (1992) finds that trade
shocks, in the form of import price changes, chiefly affect employment not wages, suggesting
that worker displacement is an important by-product of international trade. Kletzer (2000,
2001) uses Displaced Worker Surveys to show that job losses due to plant closures, mass layoffs
or other non-performance reasons are positively linked to import competition, though not to
trade in intermediates. Several other studies confirm this positive relationship between import
competition and displacement (Haveman, 1994; Addison et al., 2000). These are all industry-
level results, however – they do not account for individual differences, especially skill.
A handful of recent studies have followed up on this work, mostly examining the likelihood
of specific, short-run labor-market transitions between sectors, and from employment to un-
employment. The variable of interest in these studies has chiefly been trade in intermediates.
Among the strengths of this work is the use of individual-level data that account for bias due
to compositional changes, as well as various sources of unobserved heterogeneity. For instance,
Egger et al. (2007) follows 38,000 Austrian males, and finds that various measures of offshoring
and import competition are negatively related over the short run to the likelihood of an individ-
ual staying in his job in an industry in which Austria does not hold a comparative advantage.
Munch (2010) considers year-to-year transitions directly from manufacturing employment to
unemployment, and finds a modest positive relationship between intermediate-goods imports
and job loss for low-skill workers. Bachmann and Braun (2011) find similar results for Germany.
By contrast, Geishecker (2008) exploits monthly worker data, finding that job tenure, not skill,
is the chief determinant of German workers’ job security.
Several other studies look beyond intermediates trade to focus on job loss due to other forms
of internationalization. For instance, Becker and Muendler (2008) find that multinationals’
foreign expansions do not reduce home-country job security, as compared with similar non-
multinational firms. Meanwhile, (Hummels et al., 2011) find that firm-specific importing shocks
reduce wages and employment for Danish workers with only a high school education. Menezes-
Filho and Muendler (2011) examine the effects of tariff reductions in Brazil, and conclude that
they are positively related to manufacturing job losses, often resulting in worker transitions
to services and longer-term unemployment. And Autor et al. (2012b) examine the long-run
impacts of Chinese import competition on U.S. manufacturing workers, finding that workers in
sectors with high levels of Chinese export exposure spend less time at their initial employer and
in their initial industry.
This paper adds to the scholarship linking trade and job loss in a few specific ways. First,
it focuses explicitly on trade relationships with low-wage countries, which is where we would
expect the clearest factor-proportions-type effects. Second, it takes a broader focus beyond
intermediates, to examine low-wage import competition from all sources. Third, it accounts
not just for relevant individual characteristics, but also for firm-specific factors that can bear
upon job loss. Of particular importance is our inclusion of measures of technology investment,
which could play a considerable and perhaps overlapping role with trade. Fourth, rather than
focusing on aggregate firm or industry job losses, this paper differentiates results by skill level,
6
focusing on workers with at least Bachelor’s degree, and those with less than a high school
diploma. Last, like Autor et al. (2012b) but unlike most of recent research in this area, it
focuses on the links between trade and job in the United States.
3 Trends in Low-Wage Import Competition
To describe low-wage import competition, we rely on a measure proposed by Bernard et al.
(2006), defined as follows:6
LW I COM Pit =ML
it
Mit +Pit Eit
(1)
where ML
it and Mit are the value of imports in industry iand time tfor low-wage countries
Land all countries, respectively; Prepresents total domestic production, or shipments; and
Emeasures U.S. exports. As Bernard et al. (ibid) observe, low-wage import competition is
therefore a function of the share of low-wage imports in the total value of industry imports, and
overall import penetration. Equation (1) can also be modified to describe sector-specific levels
of import competition from countries that are expected to pay higher wages, substituting the
existing numerator for (Mit ML
it ).
Nonetheless, our primary interest in this paper is exploring impacts of trade with China
and other low-wage economies. Countries are classified as low-wage on the basis of the World
Bank country classification scheme, which annually slots national economies into four groups:
low income; lower middle income; upper middle income; and high income. We use 1992, the
first year available in our data, as the base classification year, and define the group of low-wage
countries in terms of membership in the low income group. Effectively, this means that the
group of low-wage countries had Gross National Incomes (GNI) per capita in 1992 of less than
or equal to US$545.7Table 1 lists the 51 economies that fall into this category, that include
China and India.
[Table 1 about here.]
[Figure 1 about here.]
We calculate LW I COM P by combining data from two U.S. Census Bureau data sources.
Trade information comes from the Foreign Trade Imports and Exports data, which capture
the universe of firms operating in the U.S. that import goods from abroad, compiled using
information gathered by U.S. Customs and Border Protection. Products in these data are
identified using ten-digit Harmonized System (HS) codes, with records going back to 1992. Using
a crosswalk produced by Pierce and Schott (2012), we aggregate from the ten-digit HS product
level to as many as 472 six-digit North American Industry Classification System (NAICS)
manufacturing industries.8Data on domestic production come from the Census of Manufactures
6, Autor et al. (2012b) modifies this measure somewhat to account for dynamics.
7GNI per capital calculated using the World Bank’s Atlas methodology. For details, see
http://data.worldbank.org/indicator/NY.GNP.PCAP.CD
8Manufacturing is defined as those NAICS codes between 31–33.
7
(CM). These survey data are gathered in each year ending in 2 or 7, and cover nearly all the
private manufacturing activity in the United States. To conform with our trade data, we settle
on four waves of the CM: 1992; 1997; 2002; and 2007. This results in a dataset that begins as
low-wage imports start their rapid ascent, and ends just before the start of the Great Recession.9
Figure 1 presents the growth of import competition from low-wage and non-low-wage coun-
tries, with industry-level measures weighted by import shares. Between 1992 and 2007, import
competition from low-wage economies has grown by more than 400%, while from countries that
are not classified as low-wage, it has expanded by one third. In absolute terms, import com-
petition from higher-wage countries remains considerably higher than for low-wage economies,
but as evidenced by differences in growth rates, this gap is closing.
[Table 2 about here.]
Table 2 presents more detailed descriptive evidence of the rising importance of U.S. imports
from these low-wage economies. In the leftmost columns, for each of the 21 two-digit NAICS
codes that comprise manufacturing, the table describes five-year changes in the share of low-
wage imports in total imports. In the middle columns, at those same five-year intervals, it
presents the results of equation (1) constructed at the two-digit NAICS level. The rightmost
columns present absolute changes in employment and the percentage change in employment.
Means and standard deviations for manufacturing on the whole are provided in the bottom
rows. From Table 2, several broad points are evident. First, manufacturing industries vary in
their exposure to trade from low-wage economies. In 2007, for instance, Beverage and Tobacco
imports from low-wage economies accounted for only one percent of all U.S. imports, while
they accounted for 74 percent of all imports in the Leather sector. At the same time, the table
shows that low-wage imports in nearly all manufacturing industries have risen over the 15-year
study period. The import competition measure LW IC OM P shows both this variation and the
common rising trend. Having a high share of low-wage imports plays a role in determining levels
of import competition, but considerable variation exists, due to differences in the importance of
trade in domestically-consumed production, the other component of LW IC OM P . Additionally,
while most manufacturing sectors have shed considerable fractions of their labor force, with a
24 percent decline overall, some of the largest declines in employment are found in industries
facing substantial low-wage import competition. Apparel, for instance, has current labor force
that is only a quarter of its level in 1992. Some computer component manufacturing has also
experienced both high levels of low-wage import competition and considerable employment
losses. Meanwhile, sectors like Food and Fabricated Metals have not experienced large declines
in employment, with small absolute amounts of import competition (though, in each case there
has been some growth). Clearly, low-wage imports are not the only factor shaping domestic
employment dynamics, but from this table it is plausible that they have played a nontrivial
9Plants in the 1992 CM are classified using the prior Standard Industrial Classification (SIC) system. To
assign NAICS codes to these establishments, we take three steps. First, for continuing plants, we assign 1997
NAICS codes to 1992 iterations. Second, for non continuing plants, we use the standard Census SIC-NAICS
crosswalk. Any unassigned plants after these two procedures are compared to the list of establishments in
LEHD’s Longitudinal Business Dynamics Bridge. Any matching firms are assigned corresponding NAICS codes.
These three procedures account for over 90% 1992 plants.
8
role. We now turn to the more systematic examination of this relationship that is the focus of
this paper.
4 Empirical Approach
The aim of this paper is to measure the extent to which low-wage import competition is related
to job loss for more- and less-skilled workers. Specifically, we define a binary outcome capturing
whether an individual loses his or her job between two time periods, and relate this to industry-
specific low-wage import competition. To pursue this strategy, we fit two kinds of models. In
the first, we relate job loss between periods tand t+ 1 to levels of import competition in t,
Joblosstt+1
ijs =β0+β1LW I CO MPit +β2X0
ijt +β3Z0
ikt +δi+δt+δg+εjt (2)
where X0is a vector of worker characteristics, including age, sex, nativity, and race, for worker
jwith skill level sworking in industry i;Z0includes features of establishment k, notably com-
puter investment. δiis an industry fixed effect that accounts for sector-specific characteristics
unrelated to import competition; δtis a year dummy variable that captures business cycle dy-
namics; δgabsorbs shocks that are state-specific; and εis an error term that satisfies classical
regression assumptions. We believe that the lagged structure of our model, with prior levels of
import competition affecting employment decisions over the next five years, is warranted on the
basis that trade adjustment will not occur instantaneously.
The second model is similar to the first, but exploits temporal variation within industries
and establishments. Specifically, we adopt a fixed effects panel approach, with job loss between
periods t+ 1 and t+ 2 related to changes in import competition, along with changes in plant-
and firm-specific dynamics between tand t+ 1, as follows:
Joblosst+1t+2
ijs =β0+β1LW I CO MPi,tt+1 +β2Z0
ik,tt+1 +δi+δt+δs+εjt (3)
In theory, equation (3) could include worker characteristics; in practice, no time-varying indi-
vidual demographics are available in our data. The chief advantage of this model is the control
for worker-level unobserved heterogeneity that is constant over time. This is particularly im-
portant, given that unobserved (but likely fairly stationary) differences in ability, motivation,
attitude, teamwork could significantly affect the likelihood of retaining one’s job.
In both approaches, the variable of interest is LW I COM P . In equation (2), a coefficient
for β1greater than zero indicates that higher levels of low-wage import competition raise the
likelihood of job loss for workers in a particular skill category. For equation (3), positive values
for β1indicate that growth in import competition raises the likelihood of job loss.
Across these specifications, results obtained using LW I CO MP could be biased to the ex-
tent that this variable is correlated with sector-specific changes in U.S. demand or productivity.
Though our motivation is to explore how rising imports from China and other low-wage econ-
omies are affecting job loss for workers with different skills, our results could instead reflect
unobserved factors that have more to do with internal U.S. industrial dynamics than with low-
wage imports themselves. To account for this potential endogeneity bias, we instrument for our
measure of import competition using two variables. The first captures the industry- and year-
specific value of exports from the same group of low-wage economies to countries in the EU-15,
9
calculated using United Nations COMTRADE data. Assuming that other high-wage countries
will face similar exposure to low-wage import competition when imports reflect factors inherent
in low-wage economies, and that local demand-side shocks ought to be relatively uncorrelated
across countries, this instrument ought to be helpful in providing estimates of the exogenous
contribution of low-wage import competition to job loss. In order to produce test statistics of
instrument exogeneity that require more instruments than potentially endogenous regressors,
we also use a second instrument: an industry-year measure of trade costs, which is the sum of
ad valorem tariff and freight rates, constructed by Bernard et al. (2006).10
Worker-level data for the analysis come from the Census Bureau’s Longitudinal Employer-
Household Dynamics (LEHD). The LEHD program integrates administrative records from state-
specific unemployment insurance (UI) programs with Census Bureau economic and demographic
data. LEHD offers a number of crucial advantages over surveys of displaced workers. First,
it tracks workers as they flow from job to job, combining them with characteristics of the
establishments at which they work. Second, with only minor exceptions, the data cover the
universe of workers in participating states. Jobs covered by UI include 90% of total wage and
salary jobs in the civilian sector of the U.S. economy (Stevens, 2002; McKinney and Vilhuber,
2011).11 The 30 states available to researchers in Census Bureau Research Data Centers through
the LEHD program at the time this research project was approved include populous states like
California, Florida, Texas, and Illinois; together they constitute 65% percent of the total U.S.
workforce. These and other states in which LEHD data is available, such as Georgia, North
Carolina and Wisconsin are also among the largest states in terms of manufacturing employment
and shipments.
One limitation of LEHD is its scant information regarding establishments. We address
this issue by combining LEHD with detailed plant data from the Census of Manufactures. This
means we focus exclusively on individuals whose initial appearance in the LEHD data is in a job
in a manufacturing establishment, though workers who transition from such employment to jobs
in any sector remain in the analytical sample. Linking LEHD to the Census of Manufactures is
a nontrivial task that necessitates a few accommodations. First, it requires a shift from LEHD’s
quarterly frequency to a quinquennial panel. Additionally, we aggregate from the plant level to
the scale of unique State Employer Identification Numbers, or SEINs, which are state-specific
unemployment-insurance taxpayer identifiers. An SEIN will correspond to an individual plant
for organizations that operate only a single plant in a particular state, while for firms with
multiple plants in the same state, it represents the aggregate of those establishments. Although
this aggregation may mask some heterogeneity for some multi-plant employers, this level also
offers two benefits. First, individual workers in LEHD cannot be directly assigned to individual
establishments in the case of multi-plant firms.12 More importantly, match rates between plants
10In addition to Bernard et al. (2006), instruments like these have been used in other recent studies, including
Autor et al. (2012b) and Hummels et al. (2011).
11Unemployment insurance records typically do not include many government workers; agricultural workers;
and members of the armed forces.
12It is possible to assign workers to establishments using Census Bureau-created imputations, such that each
employee in an organization that has multiple plants in the same state is assigned 10 possible plant matches.
Hence, estimates could in theory be produced using imputation commands such as Stata’s mi suite. Given the
size the data, however, this approach creates computational challenges, since an imputation-ready dataset would
effectively contain nearly ten times the original number of records.
10
in the LEHD and Census of Manufactures improve dramatically when we restrict matching
to state and Employer Identification Numbers (EINs). Effectively, our analytical sample is
dramatically larger when matching on this basis.13
The addition of data from the Census of Manufactures means we can include a number of
key plant-level predictors. Most importantly, we estimate establishment-specific technological
change, by calculating investment in high technology, using the fraction of spending on com-
puter equipment in total equipment expenditures.14 As discussed earlier, it is widely held that
technological change has been the primary driver of labor market reallocation over the past
decades. If computers and other high-technology investments function to substitute for workers
with low skill levels, we should expect it to be positively related to job loss for those work-
ers. Several additional establishment-level controls are included in estimates of equations (2)
ands (3). We include a measure of total shipments to capture establishment size; the ratio of
capital to value-added to account for overall differences in capital-intensity; a dummy variable
that takes on a value of one when an establishment is part of a multi-unit firm; a measure of
establishment exports, since research indicates that exporters and nonexporters behave differ-
ently (Bernard et al., 1995; Bernard and Jensen, 1999); and finally a measure of the age of the
establishment.15
We retain only workers between the ages of 16 and 65 who are employed at the same
establishment for all four quarters and who do not simultaneously work at another job, and who
appear in at least the subsequent wave of data, such that it may be possible to observe a change
in their job status. Among these workers, job loss is defined as a change in employer between
two consecutive periods, such that nominal salary in the second position is less than the salary a
worker held in the first. This is a different approach toward identifying job loss than is common
in the literature. In survey data, workers report being ‘displaced’ or ‘dislocated’ when their
departure was involuntary, due to layoffs or plant closures, as distinct from being a function
of individual performance (Kletzer, 1998). With administrative data like LEHD, it is not
possible to determine definitively whether a departure from a job was voluntary or involuntary.
However, it is unlikely that a transition from one full-year fully-employed job to another would
be undertaken voluntarily if such a switch entailed losses in annual income. Moreover, a focus
on the sample of workers who are more likely to be fully-employed also limits bias that might
13We match LEHD and the Census of Manufactures using two bridges: the Business Register Bridge (BRB)
and the Longitudinal Business Dynamics Bridge (LBDB). This is required since BRB covers 1992, while LBDB
tracks the period 1997 to 2004. We first adjust the BRB, assigning NAICS codes to EINs, using three methods
in sequence: first we assign NAICS codes when there are 1:1 SIC-NAICS matches; second, for matches that are
1:many, we collect industry codes from subsequent appearances of the firm in LBDB; third, we assign NAICS
codes to any remaining firms based on the most probable NAICS on the basis of employment ratios. This adjusted
BRB is combined with LBDB to form a master bridge between LEHD and the Census of Manufactures. Due to
LBDB’s termination in 2004, we lose firms that appear only after this date. However, such firms would not be
included in the analysis, given the temporal structure of equations (2) and (3). In terms of granularity, matching
using state and industry results in more than a 60 percent match rate, while using the most restrictive matching,
we retain only approximately 17 percent of the firms.
14Note that computer investment data are unavailable in 1997. We ran models excluding 1997 and subsequently
using computer investment data for 1997 that we interpolated from surrounding observations. There were no
qualitative differences in the results of our models; results presented are from the interpolated 1997 values of
computer investment.
15For equation (2), we include a direct measure of plant age. For fixed effects estimates of equation (3), which
do not allow time-invariant predictors, we create a ‘relative plant age’ indicator, which is the ratio of the first
year of plant operations and the current year.
11
arise if workers vary considerably in terms their labor-force attachment. For workers with less
than a high school degree, designated as low-skill workers, this results in an analytical sample
for equation (2) of 1,000,400, and a sample of 565,000 for equation (3). Samples for equation (3)
are smaller because of the added restrictions it imposes in terms of continuity across multiple
periods. For workers with at least a Bachelor’s degree, constituting the high-skill subset of
workers, the sample for equation (2) consists of 850,000 workers, while 550,000 college-educated
workers are available to estimate equation (3).16 In samples for equation (2), 13.9 percent of
workers with less than a high school degree lost their jobs over the study period; the comparable
figure for workers with at least a Bachelor’s degree is 14.4 percent.
5 Results
Equation (2) is a pooled cross-sectional model that can be estimated using both ordinary least
squares as well as binomial logistic regression.17 Estimates produced using the logistic model are
preferable, given the limited dependent variable. All models are estimated with standard errors
clustered at the level of the establishment, on the basis that the likelihood of a worker losing their
job to trade competition will be related to that of their co-workers. Three kinds of estimates of
equation (2) are produced for low- and high-skill workers: ordinary least squares, logistic, and
a two-stage least-squares regression. It is possible to estimate equation (3) using standard fixed
effects and fixed effects logit models; all things equal the latter is preferable. However, panel
logit models systematically failed to converge; despite a wealth of diagnostics, this problem
could not be solved. Hence, a linear probability fixed effects model is presented, along with
estimates produced using a fixed effects instrumental variables approach. Estimation using the
linear probability model should not be biased, though it will be inefficient due to potential
heteroscedasticity; however, the clustered standard errors should correct for this issue.
[Table 3 about here.]
5.1 Low-skill workers
For workers with less than a high school education, Table 3 reports estimates of the relationship
between low-wage import competition and job loss. The first three columns report results from
equation (2), in which levels of import competition at time tpredict the likelihood that a worker
loses her job between tand t+ 1. The first column presents estimates produced using ordinary
least squares. For these and all other estimates, standard errors have been clustered at the level
of the establishment, on the basis that one should expect an individual’s likelihood of job loss to
be related to that of her co-workers.18 Low-wage import competition, LW I COM P , is positively
related to the outcome, suggesting that greater threat from low-wage imports is associated with
greater risks of job loss for less-skilled workers; however the coefficient is not significant in
16These sample sizes have been rounded to the nearest 1,000 to facilitate disclosure through the U.S. Census
Bureau’s Center for Economic Studies.
17The latter implies a somewhat rewritten version of equation (2).
18Results were also produced using simple heteroscedasticity-robust standard errors. The broad contours of the
results did not vary dramatically, however import competition was positive and significant across all estimators.
These results are available upon request
12
this specification. Interestingly, computer investment is negatively and significantly related
to job loss for this group of workers. The higher the share of computer equipment in total
investment, the lower the likelihood of a low-skill worker losing one’s job. Job loss is also
negatively related to firm size, as measured by shipments, as well as to the ratio of capital to
value-added. Being a low-skill worker in a multi-unit firm increases the likelihood of job loss;
exporting is also positively related to job loss, though insignificantly in this model. Among
demographic characteristics, older workers and female workers are more likely to lose their jobs,
while immigrants and white workers face lower odds of job loss. This same pattern of results
holds for the second column, that estimates a logistic regression that ought to be more efficient,
given the limited dependent variable.
In the third column, we account for potential endogeneity bias by instrumenting for LW IC OM P
using both exports from our sample of low-wage countries to EU-15 economies, and the measure
of trade costs, each time- and six-digit NAICS industry-specific. We report several diagnostics
on the suitability of these instruments. The Kleibergen-Paap F-statistic reports on instrument
strength under the assumption that errors are not independent and identically distributed. The
value of 202.13 is well above the Stock-Yogo critical values, from which we conclude that the
instrument set is not weak. The Hansen-J p-value means that we fail to reject the hypothesis
that the instruments are not exogenous. In other words, we can assume that our instruments
are not correlated with the error term, permitting us to estimate the exogenous contribution
of low-wage import competition to job loss. The second-stage results shown in column 3 are
closely related to results in the first two columns, except that the coefficient on low-wage import
competition, still positive, is now highly significant.
[Table 4 about here.]
The fourth and fifth columns report results from equation (3), in which we better exploit
the dynamics available in the data. In these estimates, changes in import competition between
tand t+ 1 are related to the likelihood of losing one’s job between t+ 1 and t+ 1. As described
above, these models are fitted using the fixed effects estimator, whose chief benefit in this
context is to account for any time-invariant individual unobserved heterogeneity. We therefore
expect these estimates to better reflect our relationship of interest. Worker demographics are
not included in the model, since these are time invariant (or in the case of worker age or job
tenure, they change in lockstep with years, which we capture with a year dummy variable).
Column 4 presents results that broadly resemble those from the other low-skill models. Low-
wage import competition is positively and significantly related to job loss. Exporting enters as
negative and significant, suggesting that growth in exports reduces the likelihood of job loss for
low-skill workers. Neither multi-unit status nor plant age are significantly related to job loss in
this model. In column 5 we present results produced using a two-stage least-squares fixed effects
estimator. F-statistic and Hansen Jvalues again suggest that the instrument set is not weak
and can be considered exogenous. Results are in line with those produced using the standard
fixed effects estimator, with import competition positively and significantly related to job loss,
while the coefficient on computer investment is negative and significant.
13
5.2 High-skill workers
The second worker subgroup of interest is high-skill workers, defined as those who have obtained
at least a Bachelor’s degree. We follow the same sequence of models as for low-skill workers,
beginning with models that predict job loss as a function of levels of import competition, before
shifting to models that estimate how changes in import competition influence the odds of job
loss. Columns 1 and 2 present results produced using OLS and Logit estimators. In both cases,
import competition is not significantly related to job loss for this worker subgroup. Computer
investment remains negative and significant: all else equal, highly skilled workers have more job
security in establishments that invest relatively more on computer equipment. This negative
relationship is true for overall capital investment as well. Highly-skilled workers face greater
odds of job loss in smaller and younger establishments, as well as in establishments that are part
of multiunit firms. Exports appear to be unrelated to job loss in these initial models. The same
patterns remain in the 2SLS model in column 3, except that import competition is positive and
weakly significant (at the 10 percent level).
The fourth and fifth columns again present results in which changes in import competition
over a prior period predict potential job loss over a subsequent period. Results are broadly
consistent with those obtained using equation (2). Most importantly, for highly skilled workers,
import competition appears to be unrelated to the likelihood of losing one’s job. Meanwhile,
computer investments appear to reduce the odds of job loss. Exports are now negatively and
significantly related to job loss, as is plant age. Instruments in the fixed effects instrumental
variables estimates are not weak, and pass the test of orthogonality.
6 Conclusion
U.S. imports of manufactured goods from China and other developing countries have risen
dramatically over the last several decades, while domestic manufacturing employment has con-
tracted from a peak of over 30 percent to less than 10 percent today. The goal of this paper has
been to consider the impact of industry-specific low-wage import competition on the likelihood
of losing one’s manufacturing job. We have been particularly interested in examining how the
risks of job loss may be disproportionately born by workers who have lower skill levels, as one
would expect from contemporary ‘horizontal’ and ‘vertical’ updates of the neoclassical theory
of factor proportions. We consider the links between trade and job loss while also accounting
for potential roles for individual and establishment characteristics, especially computerization.
Our primary finding is that low-wage imports have a different relationship to job loss de-
pending on a worker’s skill level. We find low-wage import competition raises the likelihood of
job loss among manufacturing workers who have completed less than a full high school educa-
tion. Controlling for worker characteristics, as well as features of the establishments where they
work, low-skill workers are more likely to lose their jobs when they work in sectors with higher
initial levels of low-wage import competition, as well as industries where this import compe-
tition has grown over the preceding period. By contrast, among workers who have completed
at least a Bachelor’s degree, industry-specific pressure from low-wage imports appears to be
largely unrelated to the likelihood of job loss. Over the period 1992 to 2007, these high-skill
14
U.S. manufacturing workers appear to be sheltered from the effects of China’s rise.
Technology is typically considered to be a major, if not the most important driver of labor
reallocation, and it has been considered to operate in a skill-biased manner. We do not find
a skill-biased link between technology and job loss. Across both high- and low-skill workers,
establishment-specific investments in computer equipment are associated with job retention.
This is a challenging finding, since a great deal of theory suggests that computers are substitutes
for less-skilled workers. As expected, in both worker groups, larger, older and more capital-
and export-intensive establishments are associated with lower odds of job loss, though these
relationships are not statistically significant in all models.
Contrary to a great deal of the literature on the labor market impacts of globalization, this
paper’s findings suggest that imports from low-wage economies have adversely affected labor
market outcomes for low-skill workers. Consistent with factor proportions, import competition
from countries whose comparative advantage lie in low-skilled labor has meant that less-skilled
workers in the U.S. have had less job security. The positive association between imports and
the risk of job loss for less-skilled workers may well represent a lower bound, since our focus
on workers who are full-year and singularly employed ignores part-time workers and others
with lower levels of labor market attachment. It is not implausible that these workers may be
more vulnerable to the effects of import competition, moreover they are also likely to be better
represented among less-skilled workers. Less-skilled manufacturing workers on the whole, in
other words, may be more vulnerable than suggested by this study. It should be said that these
results say nothing about the overall gains from trade, which may well outweigh losses in this
worker group. However, it provides further evidence that trade has played some role in the poor
recent labor market situation of these domestic workers, and likely in the larger expansion of
income inequality.
15
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18
List of Figures
1 The Rise of Low-Wage Import Competition . . . . . . . . . . . . . . . . . . . . . 20
19
Figure 1: The Rise of Low-Wage Import Competition
12345
Import Competition Growth (1992=1)
1990 1995 2000 2005 2010
Year
Lowwage Import Competition Other Import Competition
20
List of Tables
1 Low-WageCountries.................................. 22
2 Low Wage Import Competition Across U.S. Manufacturing Industries . . . . . . 23
3 Low-Wage Import Competition and Job Loss Among Workers with a High School
DegreeOrLess ..................................... 24
4 Low-Wage Import Competition and Job Loss Among Workers with a Bachelor’s
DegreeorMore..................................... 25
21
Table 1: Low-Wage Countries
Afghanistan Comoros Haiti Maldives Sao Tome
Bangladesh Congo Honduras Mali Sierra Leone
Bhutan Egypt India Mauritania Solomon Isl.
Benin Equatorial Guinea Indonesia Mozambique Somalia
Burkina Faso Ethiopia Kenya Myanmar Sri Lanka
Burundi Gambia Laos Nepal Sudan
Cambodia Ghana Lesotho Niger Tanzania
Central African Rep. Guinea Liberia Nigeria Togo
Chad Guinea-Bissau Madagascar Pakistan Uganda
China Guyana Malawi Rwanda Vietnam
Zambia
Note: Classified according to the World Bank for the year 1992. N=51
22
Table 2: Low Wage Import Competition Across U.S. Manufacturing Industries
Low-wage Imports in Total (%) LW I COM P Empl Empl
Industry 1992 1997 2002 2007 1992 1997 2002 2007 (%)
Food 6 9 8 13 0.4 0.5 0.5 1.1 -23.2 -1.5
Beverage & Tobacco 1 2 2 1 0.0 0.2 0.2 0.2 -118.9 -33.9
Textile Mills 16 19 20 27 3.2 3.5 5.2 8.5 -322.1 -65.5
Textile Prod. Mills 44 45 53 73 8.6 7.7 14.1 32.8 -77.9 -33.1
Apparel 31 36 39 67 16.4 21.0 28.2 57.5 -688.2 -76.2
Leather 40 57 66 74 28.2 42.3 58.4 70.3
Wood 10 8 10 20 1.7 1.6 2.1 3.8 -25.9 -4.8
Paper 1 3 6 13 0.2 0.4 0.9 2.1 -189.0 -29.2
Printing & Related 10 11 22 36 2.2 1.7 5.3 14.2 -186.5 -23.1
Petroleum & Coal 4 9 4 3 0.4 1.3 0.8 0.6 -38.3 -25.1
Chemicals 2 4 4 6 0.4 0.7 0.9 1.8 -174.8 -16.9
Plastics & Rubber 7 15 20 31 0.8 1.6 2.8 6.1 -67.6 -8.2
Nonmetallic Minerals 8 16 24 30 1.4 2.6 4.5 6.3 -27.9 -5.3
Primary Metals 2 3 5 10 0.6 0.8 1.4 3.8 -232.8 -33.8
Fabricated Metals 7 11 19 29 1.1 1.6 3.5 6.9 -47.2 -2.9
Machinery 2 5 9 16 0.6 1.4 2.8 6.4 -222.7 -15.8
Computer & Electric 4 8 17 36 2.1 3.6 9.3 23.1 -630.0 -33.1
Electrical Equipment 11 19 28 34 2.9 5.3 10.1 16.5 -203.7 -32.2
Transport Equipment 0 1 1 3 0.1 0.2 0.5 1.7 -422.6 -19.8
Furniture 9 22 43 62 1.5 4.0 11.1 19.9 -72.3 -12.0
Miscellaneous 24 36 41 48 10.5 14.4 17.7 26.0 -44.0 -6.4
Mean 11 16 21 30 4 6 9 15 -191 -24
Standard Deviation 13 15 18 23 7 10 13 19 193 20
Note: Employment change and growth rates based on authors’ calculations using BLS data between 1992 and
2007. Trade and import competition based on authors’ calculation using Foreign Trade Imports and Exports
data as well as data from the Census of Manufactures. Low wage countries are defined as being those defined as
“Low-income’ in 1992, according to the World Bank’s country classifications.
23
Table 3: Low-Wage Import Competition and Job Loss Among Workers with a High School
Degree Or Less
Outcome: Job Loss (0=Kept Job; 1=Lost Job)
(1) (2) (3) (4) (5)
OLS Logit 2SLS FE FE 2SLS
LW I COM P 0.0508 0.4611 0.2661 0.1044 0.4273
(0.0370) (0.3336) (0.0955)*** (0.0622)* (0.1656)***
Computer Investment -0.0284 -0.2644 -0.0289 -0.0727 -0.0744
(0.0056)*** (0.0578)*** (0.0056)*** (0.0130)*** (0.0131)***
Shipments ($mil) -0.0109 -0.0931 -0.0108 -0.0200 -0.0194
(0.0033)*** (0.0345)*** (0.0033)*** (0.0064)*** (0.0060)***
Capital/Value-Added -0.0001 -0.0008 -0.0001 -0.0002 -0.0002
(0.0001)** (0.0002)*** (0.0001)** (0.0001)*** (0.0001)***
Multi-Unit Firm 0.0484 0.4192 0.0483 0.0343 0.0348
(0.0022)*** (0.0181)*** (0.0022)*** (0.0218) (0.0220)
Exports ($mil) -0.0182 -0.2290 -0.0172 -0.0893 -0.0871
(0.0187) (0.2497) (0.0187) (0.0203)*** (0.0193)***
SEIN Age/Rel. Age -0.0012 -0.0101 -0.0012 -2.0235 -2.0691
(0.0002)*** (0.0014)*** (0.0002)*** (1.7917) (1.8050)
Worker Age 0.0009 0.0077 0.0009
(0.0000)*** (0.0004)*** (0.0000)***
Female 0.0092 0.0764 0.0093
(0.0012)*** (0.0096)*** (0.0012)***
Foreign Born -0.0153 -0.1315 -0.0154
(0.0017)*** (0.0153)*** (0.0017)***
White -0.0086 -0.0717 -0.0087
(0.0014)*** (0.0116)*** (0.0014)***
Year Fixed Effects Yes Yes Yes Yes Yes
Industry Fixed Effects Yes Yes Yes Yes Yes
State Fixed Effects Yes Yes Yes Yes Yes
Clustered SE @ SEIN Yes Yes Yes Yes Yes
Observations 1,00,4000 1,004,000 1,004,000 565,000 565,000
R-Squared 0.02 0.03 - 0.13 -
F-statistic (K-P) - - 202.13 - 95.6
Hansen J- - 0.021 - 0.778
Hansen J p-value - - 0.884 - 0.3777
Note: * significant at 10%; ** significant at 5%; *** significant at 1%
24
Table 4: Low-Wage Import Competition and Job Loss Among Workers with a Bachelor’s Degree
or More
Outcome: Job Loss (0=Kept Job; 1=Lost Job)
(1) (2) (3) (4) (5)
OLS Logit 2SLS FE FE 2SLS
LW I COM P -0.0057 0.0381 0.2207 0.0207 0.2824
(0.0469) (0.4057) (0.1172)* (0.0752) (0.2451)
Computer Investment -0.0213 -0.1770 -0.0220 -0.0563 -0.0577
(0.0079)*** (0.0724)** (0.0079)*** (0.0172)*** (0.0173)***
Shipments ($mil) -0.0104 -0.0883 -0.0102 -0.0174 -0.0171
(0.0032)*** (0.0341)*** (0.0032)*** (0.0078)** (0.0076)**
Capital/Value-Added -0.0002 -0.0010 -0.0002 -0.0001 -0.0001
(0.0001)*** (0.0003)*** (0.0001)*** (0.0001) (0.0001)
Multi-Unit Firm 0.0456 0.3826 0.0455 0.0531 0.0530
(0.0028)*** (0.0222)*** (0.0028)*** (0.0385) (0.0386)
Exports ($mil) -0.0206 -0.2632 -0.0196 -0.0792 -0.0780
(0.0153) (0.2010) (0.0153) (0.0244)*** (0.0237)***
SEIN Age/Rel. Age -0.0014 -0.0119 -0.0014 -3.4635 -3.5066
(0.0002)*** (0.0016)*** (0.0002)*** (1.9609)* (1.9647)*
Worker Age 0.0011 0.0090 0.0011
(0.0001)*** (0.0005)*** (0.0001)***
Female 0.0104 0.0835 0.0104
(0.0012)*** (0.0100)*** (0.0012)***
Foreign Born -0.0169 -0.1423 -0.0170
(0.0019)*** (0.0159)*** (0.0019)***
White -0.0086 -0.0689 -0.0086
(0.0016)*** (0.0127)*** (0.0016)***
Year Fixed Effects Yes Yes Yes Yes Yes
Industry Fixed Effects Yes Yes Yes Yes Yes
State Fixed Effects Yes Yes Yes Yes Yes
Clustered SE @ SEIN Yes Yes Yes Yes Yes
Observations 850,000 850,000 850,000 550,000 550,000
R-Squared 0.02 0.02 - 0.14 -
F-statistic (K-P) - - 106.52 - 26.265
Hansen J- - 0.031 - 0.295
Hansen J p-value - - 0.891 - 0.5867
Note: * significant at 10%; ** significant at 5%; *** significant at 1%. Standard errors for estimates for
Shipments and Exports are unavailable due to researchers’ error in disclosure process, however coefficients and
significance levels are correct, and the missing standard errors can be added in revision phase.
25
... The coefficient value of about -0.03 highlights that when all explanatory variables are kept constant, ceteris paribus, one-unit increase in previous year's imports output results in 0.03 less wages output. This makes economic sense, as imports reduce the wages output and employment in most sectors of the economy (Francois & Roland-Holst, 1996;Kemeny et al., 2015;Mukhtar & Rasheed, 2010;Pomfret, 1992). The results are attributed to the fact that oranges from Southern Africa Development Community (SADC) member states are exported to South Africa, while sometimes those countries are using South African ports to export to their destine markets. ...
Thesis
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ABSTRACT The study analysed the effects of international trade on employment and wages in the fruit industry of South Africa. However, the study prioritised six industries within the fruit industry which are pertinent contributors to economic growth, international trade, employment and source of wages. The six types of fruits considered for this study are apples, apricots, avocadoes, oranges, pears and table grapes. The relationship between international trade and labour market is continuously significant, especially with increasing number of trade agreements amongst countries and regions. The international trade has been identified by many economic authors to be amongst main contributors of employment and wage source in the exporting countries. The overarching theoretical framework guiding research on the impact of international trade on employment and wages is based on Krugman’s theory of imperfect competition. The theory states that international trade on similar products amongst developed and developing countries works in favour of the developed countries based on the following arguments: developing countries export primary commodities; developed countries export beneficiated goods; firms in developed countries are mostly vertically integrated with a higher market share. The overall aim of the study is to analyse the effects of international trade on employment and wages in the South African fruit industry between the period between 1990 and 2018. There are five objectives for the study and they are broken down as follows: outlining the performance of the South African fruit industry in terms on international trade, employment and wages; secondly, to analyse the impact of international trade flow on employment and wages in the selected six South African fruit industries; thirdly, to determine the causality effects amongst employment, wages and exports within the six South African fruit industry; fourthly, to determine the response of employment, exports and imports on changes in wages within the selected six South African fruit industries; and lastly, to determine the effects of European Union’s Trade Development and Cooperation Agreement on wages in the South African fruit industry. The study adopted various analytical techniques to address the objectives. Those analytical techniques were used as follows: descriptive statistics, to profile the six prioritised fruit industries; error correction model, to analyse the impact of international trade flow on employment and wages in the selected six South African fruit industries; granger causality test, to determine the causality effects amongst employment, wages and international trade within the six South African fruit industry; two-staged least squares approach, to determine the response of employment, exports and imports on changes in wages within the selected six South African fruit industries and ordinary least squares, to determine the effects of European Union’s Trade Development and Cooperation Agreement on wages in the South African fruit industry. The findings from descriptive analysis show that all six prioritised fruit industries contributes significantly to the international trade, employment and wages in South Africa. The error correction model for all six fruit industries indicates the existence of a long-run relationship amongst total employment, wages and international trade. Therefore, findings for all fruit industries show that exports output lead to an increase in total employment in a long run, while imports output lead to a decrease in total employment in a long run. The granger causality test for all six fruit industries highlight that there is a causality effect between total employment and exports output. However, there is no causality effect between total employment and imports output, even between exports output and imports output. The results from the two-staged least squares indicate that the wages are affected positively by the exports output. However, there are other factors that affect wages positively such as net realisation from exports, local sales, total gross value of production and foreign direct investment. The wages are negatively affected by imports output, average exchange rate and average prices. The ordinary least squares for all estimated fruit industries show that the volumes of exports to the European Union market affect the wages positively, while other variables that are positively affected by the exports to EU market include amongst others the production volumes, productivity, total area planted and foreign direct investment. However, the volumes of exports to the European Union market negatively affect the processing volumes of the fruit industries in South Africa, domestic consumption per capita and average prices. Conclusively, it is recommended that fruit producers, with support of government institutions responsible for trade promotions, should strengthen trade cooperation with various trading blogs, more particularly the European Union; United Kingdom; countries in Asia and Middle East; and African states. This exercise will highly enhance the capacity of South African fruit producers to exploit the untapped international trade opportunities from different markets. Furthermore, it is prudent to recommend that the government should continue to regulate the labour market so that employees could benefit from net realisation from international trade. This will probably reduce the instances of unfair labour practices such as lower wages, child labour, abnormal working hours and overall poor working conditions.
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