Rothwell on Autor, Dorn and Hanson

A number of people have asked me to comment on a new paper by Jonathan Rothwell, which criticizes a study by Autor, Dorn and Hanson (ADH) on the impact of Chinese imports on the US job market.

I conclude that the economic losses from trade are not as severe as the economics literature currently implies. Workers in the most import-exposed sectors face a risk of layoff and unemployment that is comparable to workers in other sectors, where competition comes almost exclusively from domestic businesses. While it is likely that less import competition would further lower the risk of displacement and boost wages for manufacturing workers, less competition would likely lead to a reduction in the ratio of product quality to price and a drop in consumer welfare. I accept the Autor et al. (2014) finding that import competition lowers wages for U.S. workers in the affected industries — but even still, I find that workers in the manufacturing sector continue to earn a sizable wage premium compared to those with similar experience and education levels in other sectors.

At the community level, these results should not be taken to mean that de-industrialization has been harmless to individuals or even communities. Rather, the results imply that deindustrialization as a result of Chinese import competition plays out no differently than deindustrialization as a result of other forces — such as domestic competition or technological change. Communities relying more heavily on industries facing import competition perform no  worse in this study on summary measures of economic development and consistently show higher growth rates in establishments. They seem to find ways to adapt, maintain wage growth and launch new enterprises.

That’s what I would have expected.  Not surprisingly, Autor, Dorn and Hanson contest Rothwell’s study.

Regardless of whether Rothwell is right or wrong, the press has done an extremely poor job in reporting the ADH study.  Trade economists already knew that specific industries, and even communities, can be hurt by import competition.  The press has suggested that the ADH study shows that China trade resulted in a net job loss to the US, a finding that really would be new.  But as Paul Krugman and I keep pointing out that’s just not so.  Their study is completely consistent with zero net job loss to the US.  That’s because the study looked at the period of 1990-2007, when monetary offset was fully engaged.  So there’s no plausible AD channel.  Of course you can make other arguments, but you can’t show aggregate effects with a cross-sectional study.

All the press coverage of ADH is much ado about nothing.  Maybe China did hurt the overall US labor market, but their study doesn’t show it.  I’m not surprised that the press ignores me, but I am a bit surprised they ignore Krugman, particularly since he has occasionally argued that China was stealing US jobs during the Great Recession.  No one can claim his critique of ADH was based on ideological bias.

PS.  Nor can Autor, Dorn and Hanson be accused of ideological bias.  For instance, they favor TPP.

PPS.  Before you try defending ADH based on non-AD channel arguments, you might consider that at various times in their paper they imply they do have an AD channel in mind.  For instance, when contrasting Germany’s trade surplus with the US trade deficit.


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27 Responses to “Rothwell on Autor, Dorn and Hanson”

  1. Gravatar of dtoh dtoh
    5. March 2017 at 11:35

    Scott,
    I don’t think you’ll get an argument (at least from me) on whether trade increases aggregate utility. The relevant and interesting question is how those gains are distributed. It would be useful to look at GINI-like coefficient for trade benefits, e.g. does every one gain equally, or do you get a few big winners and a lot of small losers, or a lot of small winners and a few big losers.

  2. Gravatar of Kevin Erdmann Kevin Erdmann
    5. March 2017 at 13:39

    ADH seem to simultaneously claim that excess homebuilding veiled the costs of declining manufacturing while also noting that a lack of urban homes has been important in preventing the labor mobility that would minimize these dislocations. There is a virus in people’s brains about what happened in housing in the 2000s that allows them to gloss over this incongruity.

  3. Gravatar of ssumner ssumner
    5. March 2017 at 15:15

    dtoh, I think that problem is most likely to occur if we have overly strong intellectual property protections. Say Bill Gates or Marc Zuckerberg exports $10 billion in services and get most of the loot, and we import stuff that was former built by 100,000 workers.

    Kevin, Good catch.

  4. Gravatar of Benjamin Cole Benjamin Cole
    5. March 2017 at 16:10

    The establishment embraces large trade deficits, open borders for immigration, the criminalization of push-cart and other small-scale vending , and extensive property zoning which outlaws the use of much land for retail.

    In combination all of these policies loosen rather than tighten labor markets, while causing house prices to rise dramatically due to the inflow of capital and people.

  5. Gravatar of Ray Lopez Ray Lopez
    5. March 2017 at 19:04

    Sumner drops names, “But as Paul Krugman and I keep pointing out that’s just not so”, suggesting that only Krugman and him are in agreement (typical Sumner strawman argument) and then makes the idiotic statement about “overly strong” (CYA adverb) IP causing inequality, ignoring the presence of substitutes always tempers IP (if you don’t like Facebook, try Skype, try MySpace(?!), try email, try SMS texting…etc). Two idiotic statements in the row, holding my breath for the third (I’m in no danger of asphyxiation).

  6. Gravatar of dtoh dtoh
    5. March 2017 at 21:47

    Scott,
    You said,

    ‘I think that problem is most likely to occur if we have overly strong intellectual property protections.”

    Or if 300 factory workers in East Podunk lose their jobs so that 300 million people can buy cheaper trinkets at Walmart.

  7. Gravatar of Benjamin Cole Benjamin Cole
    6. March 2017 at 02:40

    FYI–

    “China’s premier says cities pressured by rising prices need to boost land supply

    BEIJING (Reuters) — Chinese cities under pressure from soaring home prices need to boost land supply appropriately while authorities take targeted measures to fight an inventory overhang in smaller cities, Premier Li Keqiang said.
    China is looking to keep the property market stable this year after prices of new homes soared 12.4 percent last year, the most since 2011. Local authorities in more than 20 cities have introduced curbs to cool the market since October.”

    —30—

    That would be ironic if “communist” China largely unzones land before “free enterprise” USA.

    Well, “free enterprise” as carefully defined and circumscribed by the ruling class….

  8. Gravatar of Lorenzo from Oz Lorenzo from Oz
    6. March 2017 at 03:21

    I am more interested in their latest paper on manufacturing jobs and marriage.
    http://www.ddorn.net/papers/Autor-Dorn-Hanson-MarriageMarket.pdf

  9. Gravatar of ssumner ssumner
    6. March 2017 at 05:50

    Ben, You said:

    “The establishment embraces large trade deficits, open borders for immigration, the criminalization of push-cart and other small-scale vending , and extensive property zoning which outlaws the use of much land for retail.”

    I doubt there is a single person in the whole country that embraces all of those things. Who are you addressing? Give me a name.

    dtoh, You said:

    “Or if 300 factory workers in East Podunk lose their jobs so that 300 million people can buy cheaper trinkets at Walmart.”

    That would be a very good thing, which would make America a more equal society.

    Thanks Lorenzo, I’ll take a look.

  10. Gravatar of Dtoh Dtoh
    6. March 2017 at 06:11

    Scott, you said;

    “”Or if 300 factory workers in East Podunk lose their jobs so that 300 million people can buy cheaper trinkets at Walmart.”

    That would be a very good thing, which would make America a more equal society.”

    I don’t know about that but it would certainly help Donald Trump get elected President.

  11. Gravatar of dtoh dtoh
    6. March 2017 at 08:14

    Scott,
    And would you consider it a good thing if the aggregate increase in utility was $0.01.

    And how can you say it would make it more equal. You don’t know unless you know whether the income of the workers after losing their jobs is greater than or less than average income of all Americans.

  12. Gravatar of B Cole B Cole
    6. March 2017 at 08:38

    Scott Sumner: I just described de facto establishment policy. Free trade and big deficits, de facto open borders for immigration, ubiquitous property zoning and routine criminalization of push-cart vending. How can you say no one supports such policies when those have been the policies of the last 40 years?

  13. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    6. March 2017 at 12:09

    McKinsey blames those laggards in construction;

    http://conversableeconomist.blogspot.com/2017/03/sagging-productivity-in-construction.html

    ———–quote———-
    “Even while other sectors from retail to manufacturing have transformed their efficiency, boosted their productivity, and embraced the digital age, construction appears to be stuck in a time warp. In the United States since 1945, productivity in manufacturing, retail, and agriculture has grown by as much as 1,500 percent; productivity in construction has barely increased at all. This not only represents a lost opportunity for the industry but costs the world economy. …

    The [construction] industry is extensively regulated, very dependent on public-sector demand, and highly cyclical. Informality and sometimes corruption distort the market. Construction is highly fragmented. Contracts have mismatches in risk allocations and rewards, and often inexperienced owners and buyers find it hard to navigate an opaque marketplace. The result is poor project management and execution, insufficient skills, inadequate design processes, and underinvestment in skills development, R&D, and innovation. …

    “Examples of innovative firms and regions suggest that acting in seven areas simultaneously couldboost productivity by 50 to 60 percent. They are: reshape regulation; rewire the contractual framework to reshape industry dynamics; rethink design and engineering processes; improve procurement and supply-chain management; improve on-site execution; infuse digital technology, new materials, and advanced automation; and reskill the workforce. Parts of the industry could move toward a system of mass production, standardization, prefabrication, and modularization—a production system—that has the potential to boost productivity by five to ten times …”
    ————–endquote———-

  14. Gravatar of Ray Lopez Ray Lopez
    6. March 2017 at 21:02

    OT – rebuttal to our host’s claim “there’s no such thing as a crash in financial assets” (yeah right): from “The Agony and the Ecstasy: The Risks and Rewards of a Concentrated Stock Position” – JP Morgan (2014): ‘To broaden our analysis, we analyzed all stocks that were members of the Russell 3000 at any time from 1980 to 2014, a database of 13,000 large cap, mid cap and small cap stocks. We then defined what we believe a concentrated stock holder would see as a catastrophic loss: “a decline of 70% or more in the price of a stock from its peak, after which there was little recovery such that the eventual loss from the peak is 60% or more.” How often does this take place? As shown in the table, 40% of all stocks suffered such a permanent decline from their peak value. Remember, we are not talking about temporary declines during the tech boom-bust or during the financial crisis, but large, permanent declines that were not subsequently recovered.’

    Or, you could believe Sumner, your choice. What else doesn’t Sumner know? Money neutrality perhaps?

  15. Gravatar of Matthew Waters Matthew Waters
    6. March 2017 at 22:28

    “There is a virus in people’s brains about what happened in housing in the 2000s that allows them to gloss over this incongruity.”

    I don’t see the incongruity here. The housing stock that was added was low density because that’s where houses could be built. Relatively little housing was built in denser, high-productivity areas. There were both too many houses built in some areas and too few built in other areas.

  16. Gravatar of bill bill
    7. March 2017 at 03:12

    I recall my mom paying $20 for my blue jeans as a kid 35 years ago. A couple of years ago I paid $15 for my blue jeans at Wal-Mart. So not just the trinkets are cheaper. We will not be better off taking several thousand jean making jobs back from China either.

  17. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    7. March 2017 at 05:24

    Treasure trove alert:

    http://miltonfriedman.hoover.org/collections

  18. Gravatar of Benny Lava Benny Lava
    7. March 2017 at 09:19

    Since we are also talking about housing I will just add that New York is finally seeing a reduction in rent due to the huge (or is that yuge?) building boom. See:

    https://www.google.com/amp/ny.curbed.com/platform/amp/2017/2/9/14554864/nyc-rental-market-january-2017

    Perhaps due to the litigious nature of city building combined with the high investment costs of building a high rise there is a significant lag in construction. Was there a building boom in big cities and we missed it?

  19. Gravatar of ssumner ssumner
    7. March 2017 at 14:43

    dtoh, You said:

    “And how can you say it would make it more equal. You don’t know unless you know whether the income of the workers after losing their jobs is greater than or less than average income of all Americans.”

    The average factory worker certainly makes more than the average Walmart shopper. Of course I’d add it’s not a zero sum game, there may be $3 of benefits to low income Walmart shoppers for each $1 in losses to workers. I’m not certain it would make America more equal, but it seems pretty likely.

    Ben, I deny that any single person supports all those policies. You are talking about completely different groups. The people who favor free trade also favor pushcarts. Unfortunately they don’t have enough political power to give us either.

    Benny, Yes, construction in NYC has been pretty strong in recent years. Unlike most older US cities, New York has gained population.

  20. Gravatar of dtoh dtoh
    7. March 2017 at 16:36

    Scott,
    If you’re trying to measure the change in the inequality, you need to look at income relative to the average both while employed as well after they have lost their jobs. If they are close to the average when they have no income, then yes that will reduced inequality…. but I don’t think that assumption is at all certain. If you’re interested in real equality you also need to look at the number of dependents of the factory worker versus the Walmart shoppers. Certainly these are somewhat technical considerations, but it seems to me that you ought to have least thought these issues before making pronouncements on the benefits from trade.

    The bigger questions though (and I think these are value/ethics questions) are a) what is optimal equality, and related b) how much aggregate utility will you trade off for more equality or how much inequality will you accept to obtain greater aggregate utility.

    It seems to me that these are the interesting and important questions. The rest of the discussion is just about arithmetic.

  21. Gravatar of Benjamin Cole Benjamin Cole
    7. March 2017 at 17:06

    OT FYI:

    “Stuart McClure, CEO of Cylance, an Irvine, California, cyber security firm, said that one of the most significant disclosures shows how CIA hackers cover their tracks by leaving electronic trails suggesting they are from Russia, China and Iran rather than the United States.”

    Hmmm. So who hacked the DNA? You sure?

  22. Gravatar of Kevin Erdmann Kevin Erdmann
    7. March 2017 at 18:44

    Matthew Waters,

    It is true that workers were moving to Dallas and Phoenix to build homes when the optimal location for those homes was Los Angeles or New York City. But, if that is the case, then there was no reason why that building needed to stop. It wasn’t that there were too many homes. It’s that they were not in the optimal cities. But, it’s not like LA and NYC suddenly started building homes, leaving those other cities with unwanted stock. Rent inflation was rising in those cities as the housing bust deepened. There was no over-supply. The national stock of homes relative to population has been level or falling for 25 years. The reason building collapsed is because the source of capital for it dried up.

  23. Gravatar of Kevin Erdmann Kevin Erdmann
    7. March 2017 at 19:05

    Benny & Scott,

    New York City is growing at roughly half the rate of the average city, about 0.5% annually. The fact that this is widely interpreted as a building boom there just shows how far gone we are.

  24. Gravatar of ssumner ssumner
    7. March 2017 at 19:13

    dtoh, You said:

    “Certainly these are somewhat technical considerations, but it seems to me that you ought to have least thought these issues before making pronouncements on the benefits from trade.”

    Yes, I am very aware of those considerations.

    In general, when a policy greatly reduces the total size of the pie, it’s almost impossible for it to improve economic welfare by boosting equality, the numbers just don’t work out.

    Kevin, Agreed, but that’s still faster than most older cities. Chicago is shrinking, despite a vibrant lakefront area. But yes, NYC should be growing faster.

  25. Gravatar of dtoh dtoh
    7. March 2017 at 20:52

    Scott,
    ” it’s almost impossible for it to improve economic welfare by boosting equality, the numbers just don’t work out.”

    I don’t think it’s the numbers. I think it’s a question of value/ethics…. what’s more important to you…. aggregate utility or equality. Unless one is clear up front about what you think is important or what you’re trying accomplish, I don’t really see how you can even start a conversation without talking at cross purposes.

  26. Gravatar of pyroseed13 pyroseed13
    10. March 2017 at 13:11

    “The press has suggested that the ADH study shows that China trade resulted in a net job loss to the US, a finding that really would be new.”

    See but here’s the problem with this…there’s nothing that a priori implies that trade must on net create jobs. The purpose of trade is not to create jobs but to improve economic efficiency. The problem is that as ADH show there are clear distributional consequences of doing this, at least with respect to China. So the challenge then is how we improve economic efficiency without necessary making those displaced by trade worse off in the long term?

  27. Gravatar of ssumner ssumner
    11. March 2017 at 14:15

    pyroseed, You said:

    “The problem is that as ADH show there are clear distributional consequences of doing this, at least with respect to China.”

    Something that’s extensively covered in every single EC101 textbook—so give them a Nobel Prize.

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