The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade

By David H. Autor, David Dorn, Gordon H. Hanson. Social Science Research Network, 2016

1,166 citations recorded by the source corpus.

China’s emergence as a great economic power has induced an epochal shift in patterns of world trade. Simultaneously, it has toppled much of the received empirical wisdom about how labor markets adjust to trade shocks. Alongside its heralded consumer benefits, trade has both significant distributional costs, which theory has long recognized, and substantial adjustment costs, which the literature has tended to downplay. These adjustment costs mean that trade impacts are most visible not in national-level outcomes for broad skill types, as canonical theory would suggest, but in the local labor markets in which the industries most exposed to foreign competition are concentrated. Adjustment in local labor markets is remarkably slow, with wages and local labor-force participation rates remaining depressed, local unemployment rates remaining elevated, and public transfer benefits take-up rising across a spectrum of programs for at least a full decade after trade shocks commence. Within impacted localities, workers most affected by rising trade exposure are those initially employed in firms that compete most directly with China. Exposed workers experience greater job churning and reduced lifetime income, with the largest adverse effects among initially low earners. Recent literature also addresses the aggregation of local-level impacts of trade shocks into national-level outcomes. Employment has fallen in U.S. industries more exposed to import competition, as expected. So too has overall employment in the local labor markets in which these industries were concentrated. Offsetting employment gains in non-tradables, export-oriented tradables, or imported-input-using industries have yet to materialize. Better understanding when and where trade is costly, and how and why it may be beneficial, are key items on the research agenda for trade and labor economists.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/ab6b728840f112067c4da61e70e313f17232f632

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Citations in the corpus

Foreign Competition and Domestic Innovation: Evidence from US Patents (2020, positive): “In a second step, we match industry-level trade exposure to firm-level data, which we then match to patent 6An extended set of results are available in our earlier working paper, Autor et al. (2016).”
The costs and benefits of leaving the EU: trade effects (2017, background): “25 Autor et al. (2016) suggest the recent increase in trade with China has led to substantial increases in inequality.”
New Frontiers: The Origins and Content of New Work, 1940–2018 (2022, background): “…trade-exposed industries and associated occupations during the last two decades.43 The findings in Table 4 make clear that these adverse shocks do not merely reduce employment numerically but also depress the emergence of new categories of 43See Autor et al. (2016) for a summary of this evidence.”
Declining Competition and Investment in the U.S. (2017, neutral): “The ‘China shock’ has been used in a variety of studies, including Acemoglu et al. (2016); Autor et al. (2016); Pierce and Schott (2016), among others.”
Trade and Manufacturing Jobs in Germany (2017, methodology): “8 This empirical strategy is based on Autor et al. (2013, 2016), who study the effect of rising Chinese import competition on total manufacturing employment across commuting zones in the United States.”
Populism and the economics of globalization (2018, background): “The wage, laborforce participation, and unemployment consequences had not dissipated after a full decade of the China trade shock (Autor et al., 2016a, b).”
Exporting Out of Agriculture: The Impact of WTO Accession on Structural Transformation in China (2019, neutral): “In our regressions, we use data on China’s import tariffs from the WITS–TRAINS database, data on export licensing requirements from Bai et al. (2017), and data on the nature of contracting from Nunn (2007) to control for these policy changes.”