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Trade-Induced Displacements and Local Labor Market Adjustments in the US

In: Trade and Labor Markets

Author

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  • Illenin Kondo

Abstract

Administrative data from the U.S. Trade Adjustment Assistance (TAA) program reveal that, across locations, one extra TAA trade-displaced worker is associated with the overall employment falling by about two workers amidst muted geographic mobility. This correlation is robust to local import penetration proxies and is corroborated using differences in the exposure of commuting zones to the plausibly exogenous normalization of U.S. trade relations with China in 2000. A Ricardian trade model with endogenous variable markups arising from head-to-head foreign competition can rationalize such a correlation. Following a trade liberalization shock, employment and earnings collapse in the less productive locations since they endogenously exhibit both higher trade-induced job losses and lower job creation, as in the data. When migration is muted in response to the trade shock, inequality increases across locations and induces transitional transfers towards decaying locations, even as employment and welfare rise in the aggregate.
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Suggested Citation

  • Illenin Kondo, 2017. "Trade-Induced Displacements and Local Labor Market Adjustments in the US," NBER Chapters, in: Trade and Labor Markets, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberch:14163
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    3. Dorn, David & Levell, Peter, 2021. "Trade and Inequality in Europe and the US," CEPR Discussion Papers 16780, C.E.P.R. Discussion Papers.
    4. Endoh, Masahiro, 2023. "The China shock and job reallocation in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 68(C).
    5. Barnette, Justin & Park, Jooyoun, 2019. "Skill and Wage Overshooting in Occupational Training with the Trade Adjustment Assistance Program," MPRA Paper 93412, University Library of Munich, Germany.
    6. Charlton, Diane & Countryman, Amanda & Manning, Dale & Ikeme, Sionegael, 2024. "U.S. Employment Exposure to Agricultural Trade Policy," 2024 Annual Meeting, July 28-30, New Orleans, LA 343771, Agricultural and Applied Economics Association.
    7. Carroll, Daniel R. & Hur, Sewon, 2020. "On the heterogeneous welfare gains and losses from trade," Journal of Monetary Economics, Elsevier, vol. 109(C), pages 1-16.
    8. Nattanicha Chairassamee & Oudom Hean, 2023. "The ripple effects of offshoring in the United States: Boosting local productivity and capital investment," PLOS ONE, Public Library of Science, vol. 18(4), pages 1-13, April.
    9. Kondo, Illenin O. & Li, Yao Amber & Qian, Wei, 2024. "Trade liberalization and labor monopsony: Evidence from Chinese firms," Journal of International Economics, Elsevier, vol. 152(C).
    10. J. Carter Braxton & Bledi Taska, 2025. "Technological Change and Insuring Job Loss," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 58, October.
    11. Daniel Carroll & Sewon Hur, 2023. "On The Distributional Effects Of International Tariffs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(4), pages 1311-1346, November.
    12. Jiang, Zhe (Jasmine), 2024. "Offshoring, firm-level adjustment and labor market outcomes," Journal of Economic Dynamics and Control, Elsevier, vol. 166(C).
    13. Justin Barnette & Jooyoun Park, 2021. "Skill Overshooting in Job Training With the Trade Adjustment Assistance Program," Economic Development Quarterly, , vol. 35(2), pages 141-156, May.
    14. Dix-Carneiro, Rafael & Kovak, Brian K., 2019. "Margins of labor market adjustment to trade," Journal of International Economics, Elsevier, vol. 117(C), pages 125-142.
    15. Ohnsorge, Franziska Lieselotte & Rogerson,Richard & Xie, Zoe Leiyu, 2024. "Jobless Development," Policy Research Working Paper Series 10928, The World Bank.
    16. Dorn, David & Levell, Peter, 2024. "Labour market impacts of the China shock: Why the tide of Globalisation did not lift all boats," Labour Economics, Elsevier, vol. 91(C).

    More about this item

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F66 - International Economics - - Economic Impacts of Globalization - - - Labor

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