Labor Market Consequences of International Trade

Labor Market Consequences of International Trade

An NBER conference on Labor Market Consequences of International Trade took place October 4. Research Associates Stephen J. Redding of Princeton University and Gordon H. Hanson of University of California, San Diego organized the meeting, sponsored by the Smith Richardson Foundation. These are summaries of papers that were presented and discussed:

Trade and Global Value Chains (slides)

Eunhee Lee, University of Maryland,
and Kei-Mu Yi, University of Houston and NBER

Lee and Yi assess the role of global value chains in transmitting global integration shocks to aggregate trade, as well as distributional outcomes. They develop a multi-country general equilibrium trade model that features multi-stage production, with different stages having different productivities and using factors (occupations) with different intensities. The model also features a Roy mechanism, in which heterogeneous workers endogenously choose their sector and occupation. Country- and worker-level comparative advantages interact. A reduction in trade costs leads to countries specializing in their comparative advantage sectors and production stages. This specialization changes labor demand, and also leads to more workers shifting to their comparative advantage sectors and occupations. The researchers calibrate their model to the U.S., China, and the rest of the world in 2000 and simulate a decline in China's trade costs with the U.S., designed to mimic China's entry into the WTO. The simulation results imply an increase in the skill premium in both the U.S. and China, and the GVC, i.e., specialization across stages, is critical to this outcome.

The Effects of Trade Policy: A Global Perspective
(NBER Working Paper No. 21957) (slides)

Nina Pavcnik, Dartmouth College and NBER,
and Pinelopi K. Goldberg, Yale University and NBER

The last two decades have witnessed a shift in the focus of international trade research from trade policy to other forms of trade frictions (e.g., transportation, information and communication costs). Implicit in this development is the widespread view that trade policy no longer matters. Goldberg and Pavcnik confront this view by critically examining a large body of evidence on the effects of trade policy on economically important outcomes. They focus on actual as opposed to hypothetical policy changes. The researchers begin with a discussion of the methodological challenges one faces in the measurement of trade policy and identification of its causal effects. They then discuss the evidence on the effects of trade policy on a series of outcomes that include: (1) aggregate outcomes, such as trade volumes (and their price and quantity subcomponents), the extensive margin of trade, and static, aggregate gains from trade, (2) firm and industry performance, i.e., productivity, costs, and markups, (3) labor markets, i.e., wages, employment, and wage inequality, (4) long-run aggregate growth and poverty, secondary distortions and misallocation, uncertainty. The researchers conclude that the perception that trade policy is no longer relevant arises to a large extent from the inability to precisely measure the various forms of non-tariff barriers that have replaced tariffs as the primary tools of trade policy. Better measurement is thus an essential prerequisite of policy-relevant research in the future. Despite measurement challenges and scant evidence on the impact of actual policy changes, existing evidence when properly interpreted points to large effects of trade policy on economically relevant outcomes, especially when trade policy interacts with other developments, e.g., technological change. The researchers point to areas and opportunities for further research and draw lessons from the past to apply to future studies.

U.S. Exports and Employment
(NBER Working Paper No. 24056) (slides)

Robert C. Feenstra, University of California, Davis, and NBER,
and Hong Ma and Yuan Xu, Tsinghua University

Feenstra, Ma, and Xu examine the employment responses to import competition from China and to global export expansion from the United States, both of which have been expanding strongly during the past decades. They find that although Chinese imports reduce jobs, at both the industry level and the local commuting zone level, the global export expansion of U.S. products also creates a considerable number of jobs. On balance over the entire 1991-2007 period, job gains due to changes in U.S. global exports were slightly less than job losses due to Chinese imports. Using data at both the industry level and the commuting zone level, the researchers find a net loss of around 0.2-0.3 million jobs. When the analysis is extended to 1991-2011, the researchers find the net job effect of import and export exposure is roughly balanced at the commuting zone level.