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Even before the Great Recession, there was a problem with the US jobs machine. Between 1991 and 2000, the share of the adult population working rose by nearly two percentage points to a high of 64.7%. The jobs growth rate averaged 1.4% a year.
Then something bad happened.
Between 2001 and 2007, the employment-population ratio gave back all those gains. And while the growth rate of the US working age population was virtually identical during the 1990s and the 2000s, averaging 1.1 to 1.2% in both decades, the growth rate of employment averaged only 0.9% between 2000 and 2007.
Was it just mean reversion, a cooling off after a too-hot decade? Maybe. But perhaps there was something else at play. From “Import Competition and the Great US Employment Sag of the 2000s” (via Marginal Revolution) by Daron Acemoglu, David Autor, David Dorn, Gordon Hanson, and Brendan Price explains why the US lost 4 million factory jobs in less than a decade:
Our results suggest that rising import competition from China has contributed significantly to the decline in U.S. manufacturing employment since 1991, with most of the adverse employment effects occurring between 1999 and 2007. The employment decline in trade-exposed industries stems both from a reduction in the number of firms and a reduction in employees per firm, and consists of declines in both production and non-production employment.
Taking into account input-output linkages between sectors, our estimates suggest that import competition in manufacturing has also contributed to a slowdown of employment growth in non-manufacturing industries that supply services to trade-exposed manufacturing firms.
The implied quantitative magnitudes are large. Our baseline estimates imply that of the substantial decline in US manufacturing employment between 1999 and 2007, 16% is due to the direct effect of Chinese import competition. Our preliminary estimates incorporating input-output linkages further indicate that over half of this 1999-2007 manufacturing employment decline could be due to Chinese import competition.
Importantly, however, this computation ignores any employment gains that would occur through other general equilibrium channels, such as further expansion in employment in manufacturing or service industries experiencing an increase in relative price (because the prices of industries competing with Chinese imports are declining). With this strong caveat, our results nevertheless suggest that the direct and indirect effects of Chinese import competition could be a key factor in the US employment sag of the last decade.
Kinda wow, particularly the negative spillover. Now, how exactly this sorts out with automation impacts, which clearly had a major impact on manufacturing, I’m not sure. The paper is preliminary and lacks policy recommendations, which I would be eager to see.
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