Workers Beneath the Floodgates: The Impact of Removing Trade Quotas for China on Danish Workers

Abstract

Using the dismantling of trade quotas on Chinese textile and clothing products in conjunction with China's accession to the WTO and an employer-employee matched data-set for the period 1999 to 2010, workers' adjustments to intensified low-wage competition is analyzed. Utilizing within-industry heterogeneity in workers' exposure to this trade shock, results reveal negative and significant impact of the low-wage import shock on workers' future earnings and employment trajectories. The abolishment of quotas leads to higher likelihood of unemployment and shorter future tenure for workers. While most workers employed by firms exposed to low-wage competition are influenced negatively to a similar extent at the exposed employer, the degree of adjustment to the initial shock varies greatly across different types of workers. In particular less-educated, older and those who had elementary occupations or occupations that require industry-specific training at the exposed firms had the worst adjustment experience. The results suggest that adjustment costs are very important and heterogeneous across different types of workers and highlight the need for targeting specific groups in assistance and adjustment schemes.