Employment Effects of Increased Import Competition

While economists have long considered increased international trade as a net welfare-improving endeavor, public opposition to further trade liberalization has grown in recent years. Critics cite domestic job loss due to firm relocation or plant closure as an expected consequence of liberalization. In this study I investigate the hypothesized relationship between rising import competition and domestic job displacement using individual worker data from the Displaced Worker Survey and industry-level trade quantity and import price data. The analysis is undertaken for the full U.S. manufacturing workforce and, to allow for potential heterogeneity of effects across worker groups, for various worker sub-classifications. A new industry concordance extends the data through 1999. The empirical findings are consistent with the labor market dynamics predicted by standard trade theory. A positive relationship is observed between rising import competition and industry displacement rates, as is considerable heterogeneity with respect to this relationship across worker sub-classifications. However, domestic demand shifts and macroeconomic fluctuations are found to impact displacement to a greater extent than does increased import competition. JEL Classifications: F1, F14, F16, J63 ________________________________________ † Contact information: University of California, Santa Cruz, Department of Economics, Social Sciences 1, 1156 High Street, Santa Cruz, CA 95064. Phone/Fax: (831) 763-1176. E-mail: [email protected]. I wish to thank my advisor, Lori Kletzer, for helpful suggestions, guidance and continued support. I also would like to express my gratitude towards K.C. Fung, Ken Kletzer, Phillip McCalman, and Manuel Pastor for comments and advice on an earlier draft of this paper. Lastly, I thank the University of California, Santa Cruz Division of Graduate Studies and the University of California Institute for Labor and Employment for continued funding. All errors and omissions are mine.