The Employment and Wage Effects of Import Competition in the United States

A new methodology is developed to determine the extent to which import competition has been responsible for labor displacements and wage movements in specific, allegedly trade—impacted sectors. The procedure involves the estimation of reduced—form wage and employment equations by sector. These equations are first derived from a more complete structural model of general equilibrium resource allocation. The proposed methodology is applied to nine manufacturing sectors in the United States. The sensitivity of employment to the domestic price of imports varies significantly across these nine sectors, whereas industry wages are relatively unaffected by movements in the price of the foreign good. Counterfactual simulations are performed under the hypothetical assumption of no intensification or abatement of import competition from 1967-1979. The differences between the paths of unemployment and wages so generated and the actual, historical paths are attributed to the effects of import competition. Imports have been responsible for the loss of a large number of jobs in only one industry, and for a significant loss in wages in two industries, among the nine studied