Trade Adjustment: Worker Level Evidence

Income Distribution, September 2014

The authors ana­lyze the effect of expo­sure to inter­na­tional trade on earn­ings and employ­ment of U.S. work­ers from 1992 through 2007 by exploit­ing indus­try shocks to import com­pe­ti­tion stem­ming from China’s spec­tac­u­lar rise as a man­u­fac­tur­ing exporter paired with lon­gi­tu­di­nal data on indi­vid­ual earn­ings by employer span­ning close to two decades. Individuals who in 1991 worked in man­u­fac­tur­ing indus­tries that expe­ri­enced high sub­se­quent import growth gar­ner lower cumu­la­tive earn­ings, face ele­vated risk of obtain­ing pub­lic dis­abil­ity ben­e­fits, and spend less time work­ing for their ini­tial employ­ers, less time in their ini­tial two-digit man­u­fac­tur­ing indus­tries, and more time work­ing else­where in man­u­fac­tur­ing and out­side of man­u­fac­tur­ing. Earnings losses are larger for indi­vid­u­als with low ini­tial wages, low ini­tial tenure, and low attach­ment to the labor force. Low-wage work­ers churn pri­mar­ily among man­u­fac­tur­ing sec­tors, where they are repeat­edly exposed to sub­se­quent trade shocks. High-wage work­ers are bet­ter able to move across employ­ers with min­i­mal earn­ings losses and are more likely to move out of man­u­fac­tur­ing con­di­tional on sep­a­ra­tion. These find­ings reveal that import shocks impose sub­stan­tial labor adjust­ment costs that are highly unevenly dis­trib­uted across work­ers accord­ing to their skill lev­els and con­di­tions of employ­ment in the pre-shock period.