Worker and Firm Responses to Trade Shocks: The UK-China Case

We exploit the recent surge in Chinese export growth to study the effects of a trade shock on a foreign market - the UK. We find that individuals initially employed in sectors highly exposed to Chinese imports earned less and remained out of employment longer than workers in sectors that were less exposed to import competition in the period 2000-2007. Earnings losses were most severe when workers remained in the same industry, whereas those who switched out of their 2-digit sector were able to mitigate these losses. The effects are heterogeneous across the distribution of earnings within the same age cohort, with initially better-paid workers suffering less in terms of employment and earnings than those initially worse-paid. Female workers experienced a greater fall in total earnings, mostly through reduced years of employment. Furthermore, firms in industries flooded by Chinese products displayed lower employment growth and higher probability of going out of business than firms in sectors more insulated from competition with China.