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Can labor market institutions mitigate the China syndrome? Evidence from regional labor markets in Europe

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  • Jan-Luca Hennig

    (Trinity College Dublin)

Abstract

A large literature has shown that trade shocks, such as the rise of China in the global markets, have had negative effects on employment in manufacturing both in the United States and in Europe. This paper analyzes how trade shocks interact with labor market regulations. More specifically, it investigates whether differences in labor market frictions mitigate or amplify the labor market effects of Chinese imports on European regions between 1997 and 2006. To do so, the paper constructs measures of regional exposure to China based on previous literature and on regional labor market frictions exploiting involuntary labor reallocations. The paper finds that regions more exposed to the rise of China have suffered from a reduction in manufacturing employment shares. This shock grows larger with regional labor market friction, hence it exacerbates the impact of trade shock on employment. Moreover, the paper finds that employment in public services, and not in construction or private services sector, absorbed the negative shock to the manufacturing sector. The unemployment rate, the labor force participation rate, and wages in all sectors are unresponsive to import competition from China.

Suggested Citation

  • Jan-Luca Hennig, 2020. "Can labor market institutions mitigate the China syndrome? Evidence from regional labor markets in Europe," Trinity Economics Papers tep1420, Trinity College Dublin, Department of Economics.
    • Handle: RePEc:tcd:tcduee:tep1420
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    File URL: https://www.tcd.ie/Economics/TEP/2020/TEP1420.pdf
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    More about this item

    Keywords

    Empirical Trade; Regional Labor Markets; Employment Structure; Labor Reallocation;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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