Job creation and job destruction: The effect of trade shocks on U.S. manufacturing employment

Abstract

AbstractThis paper studies the effect of export expansion on the US labour market over the last two decades. Exploiting foreign emerging markets’ unilateral liberalisation, this paper provides new empirical evidence for the importance of export expansion to the US labour market at the industry level. Using a novel instrumental variable strategy, the result confirms that US exports played a critical role in supporting manufacturing employment. Reduced‐form estimates imply that US exports to different markets created more than 1.6 million manufacturing jobs between 1991 and 2007, which is comparable to the estimated job losses attributed to the import competition from China. Meanwhile, there is substantial heterogeneity in this positive employment effect across export destinations and industries. Industries not only respond differently to various export shocks, but could also experience differential employment growth facing the same export shock. I find that the job creation effect is larger for industries with a higher initial share of workers who are older, less‐educated or non‐white, and performing routine‐based tasks. In addition, the effect is more pronounced for industries that had higher labour market concentration.