Labour market impacts of the China shock: Why the tide of Globalisation did not lift all boats

David Dorn and Peter Levell

Labour Economics, 2024, vol. 91, issue C

Abstract: The 1990s and 2000s saw a dramatic expansion in global goods trade. China rapidly emerged as the world's leading exporter while manufacturing employment in many high-income countries plummeted. Guided by textbook models that assumed frictionless labour markets and balanced trade, economists long maintained the view that trade had only modest labour market impacts and was not an important contributor to rising inequalities in high-income countries. We review recent evidence on the impacts of rapidly rising import competition from China on a broad range of outcomes in high-income countries. Import competition led to employment and wage losses that were heavily concentrated among the employees of exposed industries and individuals residing in local labour markets where such industries clustered, while consumer gains from lower goods prices were much more evenly distributed in the population. The disruptive effects of trade were particularly salient in countries such as the United States and the United Kingdom where a rapid growth of imports did not coincide with a commensurate expansion of own exports. Local labour markets facing greater import competition also experienced deteriorations in terms of health outcomes, crime, and family structures, and they became more likely to support far right politicians. We discuss several policy options to support the losers from globalisation.

Keywords: Trade; Globalisation; Inequality; Employment; Wages; Consumer prices; Public policy (search for similar items in EconPapers)
JEL-codes: E31 F13 F14 F16 I38 J21 J23 J31 J61 J62 R11 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:labeco:v:91:y:2024:i:c:s0927537124001258

DOI: 10.1016/j.labeco.2024.102629

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