Economists Look into Evidence of U.S. Losing Jobs to China

Tennessee has abundant hardwood forests, and business sectors related to them thrived for many years. Yet the state’s employment levels in the flooring, furniture-making, and cabinetry industries have cratered—down by 72%, 50%, and 50%, respectively, from 2005 to 2009.

What happened? The economic slump in the U.S. certainly hurt those trades. But also: China happened. As some economists now recognize, the formal trade relationship between the U.S. and China, established in the 1990s and solidified with a World Trade Organization agreement in 2001, dramatically affected a large number of labor-intensive industries in the U.S. In those fields, jobs moved en masse to China, where workers are available at even lower wages.

That relatively sudden shift, research has shown, comes with a heavy cost to U.S. workers. When jobs vanish, the better-trained workers may bounce back, but many blue-collar workers do not. And entire communities have been punished economically as well. These findings run against the bullish assumptions many economists have made about international trade in recent decades. But now a paper co-authored by MIT economist David Autor analyzes the data and makes clear how significant that impact has been.

“Among the most skilled workers, we’ve seen lots of [job] reallocation without any dire consequences,” says Autor. “But for the lower-skilled [workers], we just see more scarring. Their wages fall regardless of what they’re doing. They’re just on a permanently lower trajectory.”

Consider: From 1999 through 2011, as the new work by Autor and his colleagues shows, import growth from China cost the U.S. about 2.4 million jobs. In turn, about 985,000 of those were in manufacturing — a large portion of the 5.8 million manufacturing jobs that the U.S. lost in total in that time. Of course, as Autor notes, trade also creates employment. For instance, he observes, it is hard to conceive of Apple’s monumental growth without the firm using China as its workshop. But evidence that the U.S. has experienced large job gains that counter the employment losses in sectors that compete with imports has been decidedly elusive so far.

The net impact on workers in U.S. regions heavily affected by competition from China has been particularly serious. Autor and his colleagues have evaluated the direct impact of low-wage Chinese industry on incomes in the more than 700 Commuting Zones (CZs), or urban areas, in the U.S. Comparing workers in CZs at the 75th percentile of exposure to Chinese competition (those strongly affected) with workers in CZs at the 25th percentile, they see a reduction in annual income of $549 per adult, while per-capita income from federal assistance only rises by $58.

All told, the paper states, “international trade tends to make low-skilled workers in the U.S. worse off — not just temporarily, but on a sustained basis.”

The paper, “The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade,” will be published in the Annual Review of Economics. The co-authors are Autor; David Dorn of the University of Zurich in Switzerland, and Gordon Hanson of the University of California at San Diego.

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