Import Competition and the Great U.S. Employment Sag of the 2000s

Income Distribution, August 2014

Even before the Great Recession, U.S. employ­ment growth was unim­pres­sive. Between 2000 and 2007, the econ­omy gave back the con­sid­er­able gains in employ­ment rates it had achieved dur­ing the 1990s, with major con­trac­tions in man­u­fac­tur­ing employ­ment being a prime con­trib­u­tor to the slump. The U.S. employ­ment “sag” of the 2000s is widely rec­og­nized but poorly under­stood. In this paper, we explore the con­tri­bu­tion of the swift rise of import com­pe­ti­tion from China to slug­gish U.S. employ­ment growth. We find that the increase in U.S. imports from China, which accel­er­ated after 2000, was a major force behind recent reduc­tions in U.S. manufacturing employ­ment and that, through input-output link­ages and other gen­eral equi­lib­rium effects, it appears to have sig­nif­i­cantly sup­pressed over­all U.S. job growth. We apply industry-level and local labor market-level approaches to esti­mate the size of (a) employ­ment losses in directly exposed man­u­fac­tur­ing indus­tries, (b) employ­ment effects in indi­rectly exposed upstream and down­stream indus­tries inside and out­side man­u­fac­tur­ing, and © the net effects of con­ven­tional labor real­lo­ca­tion, which should raise employ­ment in non-exposed sec­tors, and Keynesian mul­ti­pli­ers, which should reduce employ­ment in non-exposed sec­tors. Our cen­tral esti­mates sug­gest net job losses of 2.0 to 2.4 mil­lion stem­ming from the rise in import com­pe­ti­tion from China over the period 1999 to 2011. The esti­mated employ­ment effects are larger in mag­ni­tude at the local labor mar­ket level, con­sis­tent with local gen­eral equi­lib­rium effects that amplify the impact of import competition.