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The unequal effects of trade and automation across local labor markets

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  • Galle, Simon
  • Lorentzen, Linnea

Abstract

We quantify the joint impact of the China shock and automation of labor, across US commuting zones (CZs) in the period 2000–2007. To this end, we employ a multi-sector gravity model of trade with Roy-Fréchet worker heterogeneity across sectors, where labor input can be automated. Automation and increased import competition from China are both sector-specific; they lead to contractions in a sector’s labor demand and a decline in relative income for CZs more specialized in that sector, amplified by a voluntary reduction in hours worked and an increase in frictional unemployment. The estimated model fits well with the aggregate performance of manufacturing subsectors and with the variation across CZs in changes in average income, the hourly wage, hours worked, the employment rate and employment in manufacturing. By itself, the China shock has stronger distributional effects than automation, but its impact on aggregate gains is less than a third of automation’s impact.

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  • Galle, Simon & Lorentzen, Linnea, 2024. "The unequal effects of trade and automation across local labor markets," Journal of International Economics, Elsevier, vol. 150(C).
    • Handle: RePEc:eee:inecon:v:150:y:2024:i:c:s0022199624000369
    DOI: 10.1016/j.jinteco.2024.103912
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    More about this item

    Keywords

    International trade; Automation; China shock; Inequality; Local labor markets;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution

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