Any Port in a Storm: Import Competition and Match Quality Downgrading

Abstract

This paper provides clear evidence that increased exposure to import competition from low-income countries results in lower quality matches between workers and firms, using matched employer-employee data from Italy. I measure match quality as the match (worker-firm) fixed effect from a wage regression that includes a rich set of time-varying observables, as well as worker and firm fixed effects. In order to account for the potential endogeneity of industry-level imports, I use low-income countries' import share in a set of other high-income countries as an instrumental variable. Import shocks reduce match quality, shifting the entire distribution of match effects leftward. Additional analysis suggests that workers are more likely to leave high-quality matches because of import competition, implying that good worker-firm matches become relatively less valuable. This finding highlights a new channel through which workers can be negatively affected by trade shocks.