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Firm Reorganization, Chinese Imports, and US Manufacturing Employment

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  • Ildikó Magyari

Abstract

What is the impact of Chinese imports on employment of US manufacturing firms? Previous papers have found a negative effect of Chinese imports on employment in US manufacturing establishments, industries, and regions. However, I show theoretically and empirically that the impact of offshoring on firms, which can be thought of as collections of establishments – differs from the impact on individual establishments - because offshoring reduces costs at the firm level. These cost reductions can result in firms expanding their total manufacturing employment in industries in which the US has a comparative advantage relative to China, even as specific establishments within the firm shrink. Using novel data on firms from the US Census Bureau, I show that the data support this view: US firms expanded manufacturing employment as reorganization toward less exposed industries in response to increased Chinese imports in US output and input markets allowed them to reduce the cost of production. More exposed firms expanded employment by 2 percent more per year as they hired more (i) production workers in manufacturing, whom they paid higher wages, and (ii) in services complementary to high-skilled and high-tech manufacturing, such as R&D, design, engineering, and headquarters services. In other words, although Chinese imports may have reduced employment within some establishments, these losses were more than offset by gains in employment within the same firms. Contrary to conventional wisdom, firms exposed to greater Chinese imports created more manufacturing and nonmanufacturing jobs than non-exposed firms.

Suggested Citation

  • Ildikó Magyari, 2017. "Firm Reorganization, Chinese Imports, and US Manufacturing Employment," Working Papers 17-58, Center for Economic Studies, U.S. Census Bureau.
  • Handle: RePEc:cen:wpaper:17-58
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    References listed on IDEAS

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    Cited by:

    1. Fischer, Andreas M & Saure, Philip, 2018. "Identifying Chinese Supply Shocks - Effects of Trade on Labor Markets," CEPR Discussion Papers 13122, C.E.P.R. Discussion Papers.
    2. Bamieh, Omar & Fiorini, Matteo & Hoekman, Bernard & Jakubik, Adam, 2017. "Services Input Intensity and US Manufacturing Employment Responses to the China Shock," CEPR Discussion Papers 12173, C.E.P.R. Discussion Papers.
    3. Teresa C. Fort & Justin R. Pierce & Peter K. Schott, 2018. "New Perspectives on the Decline of US Manufacturing Employment," Journal of Economic Perspectives, American Economic Association, vol. 32(2), pages 47-72, Spring.
    4. Asquith, Brian & Goswami, Sanjana & Neumark, David & Rodriguez-Lopez, Antonio, 2019. "U.S. job flows and the China shock," Journal of International Economics, Elsevier, vol. 118(C), pages 123-137.
    5. Muendler, Marc-Andreas, 2017. "Trade, technology, and prosperity: An account of evidence from a labor-market perspective," WTO Staff Working Papers ERSD-2017-15, World Trade Organization (WTO), Economic Research and Statistics Division.
    6. Sasahara, Akira, 2018. "Explaining the Employment Effect of Exports: Value-Added Content Matters," MPRA Paper 89731, University Library of Munich, Germany.

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