The China Syndrome: Local Labor Market Effects of Import Competition in the United States

Income Distribution, November 2013

The authors ana­lyze the effect of ris­ing Chinese import com­pe­ti­tion between 1990 and 2007 on U.S. local labor mar­kets, exploit­ing cross-mar­ket vari­a­tion in import expo­sure stem­ming from ini­tial dif­fer­ences in indus­try spe­cial­iza­tion and account­ing for U.S. imports using changes in Chinese imports by oth­er high-income coun­tries. They find that ris­ing imports cause high­er unem­ploy­ment, low­er labor force par­tic­i­pa­tion, and reduced wages in local labor mar­kets that house import-com­pet­ing man­u­fac­tur­ing indus­tries. Their main analy­sis indi­cates that import com­pe­ti­tion explains one-quar­ter of the con­tem­po­ra­ne­ous aggre­gate decline in U.S. man­u­fac­tur­ing employ­ment. Transfer ben­e­fits pay­ments for unem­ploy­ment, dis­abil­i­ty, retire­ment, and health­care also rise sharply in more trade-exposed labor mar­kets.