To Find Relative Earnings Gains After the China Shock, Look Upstream and Outside Manufacturing

We examine U.S. workers’ earnings after trade liberalization with China using a novel approach that considers industry and geographic exposure to the shock both directly and via input-output linkages. In contrast with the literature, we find evidence of relative earnings gains from the “China Shock” among workers initially employed outside manufacturing due to increased competition in input markets. Workers initially employed in manufacturing, by contrast, exhibit substantial and persistent relative declines in earnings that are exacerbated by downstream exposure. Across these estimates, we find that spatial exposure is more influential for workers’ earnings outcomes than industry exposure.

Peter Schott is the Juan Trippe Professor of International Economics at Yale University. His research focuses on how firms and workers respond to globalization. His most recent projects examine the decline of U.S. manufacturing employment during the 2000s, the relative export quality of developing versus developed economies, and the relationship between trade policy and firm productivity.