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Title: Trade Reforms, Foreign Competition, and Labor Market Adjustments in the U.S.

Citation Type: Working Paper

Publication Year: 2012

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Abstract: Recent empirical research indicates, in contrast to standard trade theory, that trade and foreign competition negatively impact some locations by worsening labor market outcomes such as unemployment. I extend and confirm this work using unique data on the U.S. Trade Adjustment Assistance (TAA) programs since 1983. I find that locations that face more foreign competition have higher job destruction rates, lower job creation rates, and thereby higher unemployment rates. I introduce a simple trade model with unemployment and segmented local labor markets facing different degrees of foreign competition. Import competition has a correlated effect on job destruction and job creation because the most vulnerable locations to foreign competition have lower productivity. Despite large reductions in employment rate in the worse hit local labor markets and in contrast to an exogenous increase in foreign productivity, an unexpected trade liberalization yields aggregate welfare gains in the model calibrated to the U.S.

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Authors: Kondo, Illenin

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Institution: University of Minnesota

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Data Collections: IPUMS USA, IPUMS CPS

Topics: Labor Force and Occupational Structure, Migration and Immigration, Other

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