Value Share Import Competition and US Manufacturing Employment

The examination of trade-induced industry-level employment effects presented in chapter 4 reveals modest wage and employment effects. Exports and imports were found to be positively and negatively related, respectively, to the employment of production workers and nonproduction workers and to average industry-level wages of production workers. In this chapter, we continue our examination of the relationship between international trade and domestic employment using an alternative measure of import competition. Developed by Schott (2002), the value share measure of import competition is the share of industry-level imports sourced from nations where Gross Domestic Product (GDP) per capita is less than 5 percent of the US level. The rationale is that lower labor costs confer an advantage to foreign firms. If relative GDP per capita is a proxy for United States-foreign wage differentials, then nations with GDP per capita levels below the US level may be potential sources for import competition. A potential advantage of the value share measure is that, unlike traditional measures of import competition (e.g., import penetration rates, import price indexes, and trade-weighted exchange rates), the value share measure avoids potential simultaneity and, thus, may permit a more definitive analysis of a hypothesized causal link between imports and domestic job loss.