Minimum wages and the China syndrome: causal evidence from US local labor markets

Luke Heath Milsom and Isabelle Roland

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Exposure to Chinese import competition led to significant manufacturing job losses in the United States. Local labor markets, however, differ significantly in how they fared with respect to manufacturing employment. An important question is whether labor market institutions have an impact on the dynamic response of manufacturing employment to rising import penetration. We contribute to this debate by showing that minimum wages amplified the negative effect of Chinese import penetration on manufacturing employment in US local labor markets between 2000 and 2007. We develop a rigorous double-edged identification strategy. First, we construct shift-share instrumental variables to address the endogeneity of import penetration. Second, we use a border identification strategy to distinguish the effects of minimum wage policies from the effects of other local labor market characteristics that are unrelated to policy. Specifically, we rely on comparing commuting zones that are contiguous to each other but located in different states with different minimum wage policies. The approach essentially considers what happens to the response of manufacturing employment to import penetration when one crosses a policy border.

Keywords: import penetration; labor market institutions; minimum wages; manufacturing employment (search for similar items in EconPapers)
JEL-codes: E24 F14 F16 J23 L60 R12 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2021-10-28
New Economics Papers: this item is included in nep-cna, nep-int, nep-mac and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:113850

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