International Trade and Job Polarization: Evidence at the Worker-Level

This paper examines the role of international trade for job polarization, where mid-wage occupations decline while employment opportunities of workers in both high- and low-wage occupations increase. With employer-employee matched data on virtually all workers and firms in Denmark between 1999 and 2009, we use instrumental-variables techniques and a quasi-natural trade liberalization experiment to show that import competition has been a significant cause of job polarization. Comparing import competition to other explanations of job polarization, import competition is quantitatively comparable to technical change as the most important alternative explanation of the hollowing out of middle-class jobs, and only import competition explains also the increase in employment opportunities in the high- and low-wage tails. Worker movement from exposed middle-class jobs up into high-wage or down into low-wage jobs is shaped by worker education and skill, and especially by task characteristics of the worker’s occupation. We find that manual tasks are central for the impact of trade because foreign workers compete against domestic workers, in contrast to technical progress which pits man versus machine.