Collaborative Research: Worker Adjustment to International Trade: Evidence from Administrative Data

University Of California-San Diego, La Jolla CA

Investigators

Abstract

Worker Adjustment to International Trade: Evidence from Administrative Data David H. Autor, MIT and NBER Gordon H. Hanson, UCSD and NBER Abstract. Economic theory suggest that by allowing countries to specialize according to their comparative advantage international trade gives consumers access to a greater variety of products, raising their real incomes. Realizing these gains often brings about substantial changes in national industry structure, as workers move out of import-competing sectors and into other activities. The public debate about globalization tends to center less on the long-run benefits of trade and more on the short-run costs of workers, firms, and industries from adjusting to import competition. Characterizing the adjustment costs associated with trade is therefore important for framing the policy discussion about global economic integration. This project examines the impact of exposure to import competition on the employment and earnings trajectories of U.S. workers over the long term. The focus is on growth in U.S. imports from China, though imports from other low-wage countries are also considered. To measure worker outcomes, the project makes use of individual-level data from the Social Security Administration (SSA) over the period 1978 to 2007. The SSA data contain a complete history of a worker's annual earnings by employer and by industry, as well as information on receipts of Social Security benefits. These data make it possible to estimate how exposure to import competition affects worker employment, earnings, and benefits uptake by firm and by sector and how these outcomes vary according to a worker's demographic characteristics (age, gender, race, ethnicity, foreign-born status), skill level, and employer characteristics. Administrative data have been used extensively in the analysis of the impact of job loss on worker incomes, but they have been underutilized in considering the consequences of U.S. trade. The project will thus provide evidence on long-run adjustment to trade among U.S. workers than is missing in the literature. Motivating the focus on China is the country's spectacular economic growth, particularly in manufacturing. Since the early 1990s, Chinas has accounted for nearly three quarters of the growth in manufacturing value added by low and middle income countries. For the United States, China's impact is compounded by a profound imbalance in the two countries' aggregate exports and imports. China runs a large trade surplus, whereas the U.S. runs a large trade deficit. U.S. industries exposed to the increase in China's trade capacity have consequently faced a major expansion in global competition on the supply side, without an offsetting expansion in consumer spending for their products on the demand side. China's export growth appears to be largely attributable to its remarkable improvements in domestic industrial productivity arising from the dismantling of state control and the liberalization of restrictions on trade and investment. The project unites two disparate bodies of knowledge. One, on how international trade affects labor markets, examines how changes in import competition alter wages and employment in the short or medium run by studying these changes in impacted firms, industries, or regions. While this approach uncovers the temporary effects of greater import competition, it misses impacts on workers that persist after an individual leaves his firm, abandons his industry, or relocates to another city or state. By utilizing long-run data on individual workers available in the SSA data, the project captures how increased trade with China changes earnings and uptake of Social Security benefits that workers experience while employed at their initial firm, after they move to a new firm in the same industry, after they shift to a new industry altogether, and after they exit from employment entirely. Decomposing the long-run change in earnings into these four components shows where in the transition process workers face the most significant adjustment costs, results that will help guide future theoretical work on trade and labor markets. The second body of related literature tracks the earnings of workers who are displaced from their jobs. Because job loss that is involuntary is difficult to identify in available data, much research uses administrative records to isolate extreme cases of displacement, such as mass layoffs associated with plant closures or substantial downsizings. The literature shows that job loss due to mass layoffs has significant negative long-run effects on worker earnings. By using administrative data, the project, like the earlier displaced-worker literature, captures the long-run effects of changes in labor-market conditions. By focusing on a specific type of change, namely one related to greater import competition from China, the project examines all types of job loss related to trade and not just those associated with mass layoffs.