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

As U.S. imports from China have increased over the past two decades, scholars have studied and debated their precise effects on American workers. Because local economies often have their own dynamics and distinct mix of companies, such imports may have very different outcomes in various regions of the country.

A 2011 study from MIT, the UC San Diego and Spain’s Center for Monetary and Financial Studies, “The China Syndrome: Local Labor Market Effects of Import Competition in the United States” (PDF), assesses varying degrees of exposure of U.S. markets to Chinese imports, and the impact on employment and wages in manufacturing and other sectors. The study, for the National Bureau of Economic Research, looks at outcomes among more than 700 American regions from 1990 to 2007.

The findings include:

Rising imports of Chinese goods have had significant negative effects on U.S. labor markets exposed to increased import competition. These include decreased employment and household incomes and increased government benefits program enrollments and transfer payments.
Regions with higher exposure to imports suffer declines in manufacturing employment by 0.65 percentage points more than regions with lower import exposure.
Exposure to Chinese imports explains 16% of the declines in U.S. manufacturing employment between 1991 and 2000 and 28% of the declines from 2000 to 2007. For the full period (1991 to 2007), Chinese import competitiveness explains 23% of the declines in U.S. manufacturing employment.
Increases in import exposure reduce wages for the non-manufacturing sector through lower demand for non-manufacturing goods, and through increased supply of labor from workers who lost their manufacturing sector jobs. Wages in the manufacturing sector did not record declines despite reduction in employment in the sector.
Job losses induced by import shocks were concentrated among young workers in the manufacturing sector, and among older workers in non-manufacturing sectors.
Adults without college degrees suffered a higher reduction in employment compared to adults with a college degree.
Among those who lose jobs because of increases in import exposure, 10% seek federal disability insurance benefits. For a $1,000 increase in import exposure, in-kind medical benefits rose by $18 per capita, Social Security disability by $8, and federal and other income assistance by $11. These did not offset the decline in average annual household income of $549 per working age adult for a $1,000 increase in import exposure.

The authors conclude that reductions in employment and wage levels driven by Chinese imports “lead to a steep drop in the average earnings of households.”

A 2011 World Bank study, “Estimating the Impact of Trade and Offshoring on American Workers,” provides additional data and perspectives on related globalization issues. The Office of the U.S. Trade Representative also presents a variety of contemporary data on the U.S.-China economic relationship.

Tags: China, trade, employment

By Pratibha Joshi April 3, 2012

Business , China , International , Jobs