International Trade and Job Polarization: Evidence at the Worker Level

Transcription

1 Internatonal Trade and Job Polarzaton: Evdence at the Worker Level Wolfgang Keller 1 and Hâle Utar 2 1 Unversty of Colorado and NBER 2 Belefeld Unversty July 5, 2015 Job polarzaton s the shft of employment and earnngs from md-level wage jobs to both hgh- and lowwage jobs. Usng longtudnal employee-employer matched data coverng all resdents and workplaces n Denmark, we study the effect of nternatonal trade on job polarzaton as trade barrers fell away wth Chna s entry nto the World Trade Organzaton. We show that trade can explan the U-shaped pattern of employment changes that s characterstc for job polarzaton. For the large md-level wage group of machne operators, already adversely by automatzaton and the ntroducton of robots, mport competton leads to a loss of eght months of md-wage employment, and ncreases of both low-wage and hgh-wage employment of about four months and one month respectvely over a perod of eght years. Trade leads to job polarzaton manly by shftng workers from ntally abundant manufacturng jobs to both hgh- and low-payng servces jobs. Trade leads to less job polarzaton for women than for men even though women experence overall job polarzaton more than men, a fndng that we relate to the swftness of the reducton n labor demand caused by mport competton. Furthermore, trade has ncreased gender nequalty by shftng women to a lesser extent nto hgh-wage jobs than men. We dscuss a number of reasons that mght be behnd these fndngs, as well as possble polcy mplcatons. The study s sponsored by the Labor Market Dynamcs and Growth Center (LMDG) at the Unversty of Aarhus. Support of the Dept. of Economcs and Busness, Aarhus Unversty and Statstcs Denmark are acknowledged wth apprecaton.

2 1 Introducton The recent transformaton of Chna from a rather poor and largely closed economy to one of the largest manufacturng producers over lttle more than two decades has been among the most sgnfcant changes n the world economy. Chna s share of world manufactures exports rose from 2 % to 4 % over the years 1990 to 1999, only to accelerate pace and account for 16 % of world exports n manufacturng goods by the year manufacturng producers n rch countres such as Denmark, the emergence of Chna s felt as a major compettve shock. Ths s partcularly true n the labor-ntensve textles and clothng sector, where the tradtonal comparatve advantage of low-wage countres has been compounded by trade lberalzaton n form of mport quota removals through Chna s entry nto the World Trade Organzaton (WTO) n the year In ths paper we study the employment trajectores of Dansh workers to determne whether mport competton from Chna has caused job polarzaton. Job polarzaton s the shft of employment shares from md-level wage jobs to both hgh- and low-wage jobs. Ths phenomenon s among the most sgnfcant labor market developments n recent decades because t has been observed n many rch countres. 2 For Fgure 1 shows that whle job polarzaton has been felt strongly n the Unted States, developments n Denmark have been even more dramatc. Md-level employment share losses affect 60 % of all occupatons (40 % n the U.S.), and t occurred at a faster pace (seven more years are shown for the U.S.). 3 Ths means that Denmark may provde mportant new lessons on job polarzaton. Our focus wll be on the textles and clothng ndustry, whch faces 1 Authors calculaton usng World Development Indcators dataset of the World Bank. 2 For the Untes States, see Autor, Katz, and Kearney (2006, 2008), Autor and Dorn (2013); Unted Kngdom: Goos and Mannng (2007); Germany: Sptz-Oener (2006), Dustmann, Ludsteck, and Schonberg (2009); France: Harrgan, Reshef, and Toubal (2015) and across 16 European countres, see Goos, Mannng, and Salomons (2014). 3 The fgure for Denmark s based on all employees n Denmark aggregated by 3-dgt occupaton level (Internatonal Standard Classfcaton of Occupatons) excludng agrculture. The fgure for the Unted States s taken from Autor and Dorn (2013) and t covers all nonfarm employment n the US. Intal occupatonal mean wage s based on hourly wage data from 1991 for Denmark and for 1980 for the U.S. 2

3 major mport competton from Chna. In our analyss the effect of mport competton turns on whether a specfc worker s employed by a frm manufacturng a product for whch Chna s entry nto the WTO removes bndng mport quotas. We study workers employment (and to a lesser extent earnngs) trajectores over the years 2002 to Coverng the relatvely hgh rates of export growth durng Chna s frst eght years of WTO membershp, ths perod captures the short and medum term mplcatons of ncreased mport competton. The end of our perod of observaton s determned by data consderatons. 4 Smoothed Changes n Employment by Wage Percentle 100 x Change n Employment Share Wage Percentle (Ranked by Intal Occupatonal Mean Wage) U.S Denmark Fgure 1: Smoothed Changes n Employment n Denmark and n the Unted States We employ admnstratve longtudnal data on the unverse of persons aged 15 to 70 years old n Denmark to study the mpact of mport competton on worker s movements between jobs. 5 The data set s unusually rch n provdng nformaton for each ndvd- 4 Occupatonal categores were changed n the year The Great Recesson startng n 2008 took place too late to be drvng our results. 5 Our data are not the admnstratve records themselves but an ntegrated database created by Statstcs Denmark from admnstratve regsters. They are owned by publc authortes and supple- 3

4 ual worker on hs or her employer, hours worked, unemployment hstory, and level of educaton, among other varables. Informaton on the tasks workers perform s avalable at a relatvely detaled four-dgt level (Internatonal Standard Classfcaton of Occupatons, ISCO). We can therefore dstngush workers not only by ndustry and educaton but also by the tasks they perform. Because we want to explot a specfc trade polcy shock the expraton of the Mult-fber Arrangement (MFA) quotas as Chna acceded the WTO we focus on workers who ntally were employed n Denmarks textles and clothng sector. 6 The orgnal purpose of the MFA n the year 1974 was to provde comprehensve protecton aganst competton from low-wage country exports of textles and clothng through quanttatve restrctons. After years of multlateral negotatons, t was agreed n the year 1995 that the MFA would gradually be lfted. Chna s non-wto status rendered t nelgble to beneft from these trade lberalzatons, whch changed only once Chna had joned the WTO n the year The subsequent dramatc surge of Chnese textles and clothng exports and the resultng ncrease n the competton s the plausbly exogenous source of shfts n employment trajectores among Dansh workers. 7 An advantage of studyng the ncdence of trade n a sngle sector s that t elmnates the nfluence of demand shocks, technology shocks, or secular trends that mght be correlated wth mports n a mult-sector analyss. Our focus on workers wth ntal employment n the textles and clothng sector comes at the cost of a smaller sample than we would have studyng the entre economy. At the same tme, we wll see that not only are the forces that drve job polarzaton n Denmark s overall economy present n mented wth addtonal nformaton drawn from varous surveys (see Bunzel 2008, Tmmermans 2010). Earler work usng ths data set ncludes Groes, Krcher, and Manovsk (2015), Hummels, Jorgenson, Munch, and Xang (2014). 6 The ncrease n trade wth Chna assocated wth the MFA quota removals has been employed recently to study technology upgradng of European frms (Bloom, Draca, and van Reenen 2014), as well as n Utar (2014, 2015) to study frms and workers adjustment. These studes do not focus on job polarzaton. 7 Utar (2014) shows that the quotas were bndng, and that ther removal led to ncreased mport competton. Bramblla, Khandelwal, and Schott (2008) examne the effects of the quota lftng n the U.S. 4

5 the textles and clothng ndustry, but movements outsde of textles and clothng (and manufacturng) play a key role n trade s effect on polarzaton. We contrbute to a growng lterature on the mportance of nternatonal trade n explanng job polarzaton, much of whch examnes changes at the ndustry or regon level. Recent work on local labor markets has shown that nternatonal trade and offshorng have not played a major role for job polarzaton n the U.S. (Autor and Dorn 2013), a result that has been confrmed n other rch countres (Goos, Mannng, and Salomons 2014, Mchaels, Natraj, and van Reenen 2014). Job polarzaton s manly explaned by nformaton and communcatons technology nvestments whereby computers, robots and automatzaton replace workers that perform easly programmable tasks (so-called routne-based techncal change; Autor, Katz, Kearney 2006, Goos and Mannng 2007). 8 Our work advances the lterature by shftng the focus from aggregate labor market consequences to job changes at the worker level. By examnng the dfference n responses between workers who are ex ante observatonally smlar except that one works for a frm that wll compete wth Chnese mports whle the other worker does not, we provde causal evdence on the mpact of trade on employment polarzaton. By sheddng new lght both on the nature of frctons that workers face when they move between jobs (such as loss of occupaton-specfc human captal), ths paper contrbutes to a better understandng of worker welfare and the overall welfare effect of nternatonal trade. We provde one of the frst accounts of job polarzaton usng mcro level data for any country. The case of Denmark llustrates well the wdely-shared experence n rch countres from a world characterzed by skll-based techncal change to one characterzed by job polarzaton. The paper shows that both worker s educaton and gender were mportant n shapng the emergence of job polarzaton n Denmark. Ths paper s n a long tradton of work examnng the role of nternatonal trade for 8 An excepton s Frpo, Fontn, and Lemeux (2011) who fnd offshorng to be mportant. Other studes of job polarzaton that do not specfcally address the role of nternatonal trade nclude Sptz- Oener (2006) and Dustmann, Ludsteck, and Schonberg (2009). 5

6 labor market outcomes, ncludng the ncrease n relatve wage of educated workers n many countres durng the 1970s and 1980s (see Feenstra 2000). The focus n recent open economy analyss has shfted to tasks nstead of ndustres or educaton levels (Grossman and Ross-Hansberg 2008), whch s lne wth evdence showng that worker outcomes have become strongly related to occupaton characterstcs (Acemoglu and Autor 2010). By affectng the relatve labor demand for md-level versus hgh- and low-wage jobs, nternatonal trade could n prncple be a cause of job polarzaton. Ths would requre that the factor content of mports from low-wage countres s ntensve n tasks for whch md-level wages are pad n rch countres. At the same tme t can be challengng to separate technology from trade explanatons for job polarzaton, especally when trade nduces techncal change (Bloom, Draca, and Van Reenen 2014, Utar 2014). We seek to make progress on the causal role of trade by usng a specfc trade polcy shock together wth worker-level nformaton on shfts between occupatons and sectors. Our man fndng s that nternatonal trade plays a statstcally and economcally sgnfcant role n explanng job polarzaton. Imports from Chna reduced the employment of a machne operator, a typcal md-level wage textle worker, by about eght months over the perod 2002 to Trade wth Chna also ncreased employment of machne operators n both hgh- and low-wage jobs by one month and four months respectvely. Trade can explan the U-shaped employment pattern n Fgure 1. Whle ths contrasts wth earler work on the causes of job polarzaton, t s n lne wth recent work documentng a powerful effect of the Chna trade for labor market outcomes n rch countres. 9 partcular, our fndng reconcles worker-level evdence on the szable effect of mport competton from Chna (Autor, Dorn, Hanson, and Song 2014, Utar 2015) wth the scant evdence for trade causng job polarzaton n studes usng more aggregate data. 10 Trade leads to job polarzaton manly by pushng workers from ntally abundant md- 9 See Autor, Dorn, and Hanson (2013), Bernard, Jensen, and Schott (2006), Perce and Schott (2013), Utar (2014); also Utar and Torres-Ruz (2013), and Hummels, Jorgenson, Munch, and Xang (2014). 10 Autor, Dorn, and Hanson (2014) present evdence that technology and trade both affect outcomes at the level of US local labor markets; ther study does not focus on job polarzaton. In 6

7 level jobs n manufacturng towards both hgh- and low-wage jobs n servces. We evaluate the effect of trade alongsde technology and offshorng explanatons of job polarzaton, fndng that the trade effect s robust and hardly affected quanttatvely by other explanatons. Trade affects most strongly manual labor, workers performng both routne and non-routne tasks. The paper also provdes a number of nterestng results on gender dfferences n the experence of job polarzaton. We fnd that whle women experence overall job polarzaton more than men, job polarzaton caused by trade affects women less than men. Key to understandng ths, we beleve, s that trade has affected the labor market n a more concentrated way than techncal change dd. Frst, trade led to a reducton of labor demand mostly n manufacturng, whereas techncal change has changed labor demand both n manufacturng and non-manufacturng. Second, whle techncal change has gradually changed the workplace n ndustralzed countres snce the 1980s, the mpact of trade was felt more suddenly around Chna s entry nto the WTO. The hgher costs of transtonng for women n the presence of a sudden drop n labor demand may be due to dfferences n the avalablty of re-tranng possbltes, or because women have on average a lower labor market attachment than men. The next secton dscusses the facts on job polarzaton n Denmark durng the 1990s and 2000s. Secton 3 ntroduces a number of possble causes of job polarzaton by presentng a number of mcro facts on ndvdual worker transtons between occupatons n Denmark s textles and clothng sectors. Secton 4 provdes background on Denmark s textles trade as Chna entered the WTO, and t descrbes the data that wll be employed. Regresson results on the role of trade for job polarzaton are presented n secton 5. In ths secton we also consder techncal change and offshorng as alternatve explanatons of job polarzaton, and examne the extent to whch trade has affected men and women dfferently. Secton 6 provdes a concludng dscusson. An number of addtonal results are shown n the Supplementary Appendx. 7

8 2 Job Polarzaton n Denmark Ths secton descrbes the overall patterns of labor demand n Denmark that can be dstngushed over the years 1991 and 2009 to set the stage for our analyss. We then examne demand shfts between broad sectors before focusng on Denmark s textles and clothng workers n the years 2001 and Major patterns of Denmark s labor demand snce the early 1990s Over the last decades the nature of labor demand has changed n ndustralzed countres, and Denmark s no excepton to ths. Ths s made strkngly clear by consderng the decade before and after the year 2000 separately. Fgure 2 presents the smoothed changes n employment shares ranked by mean ntal occupatonal wage for all of Dansh workers outsde agrculture, as n Fgure 1, except that we dstngush the years 1991 to 2000 from the perod 2001 to Durng the 1990s, we see that labor demand was ncreasng wth wages. To the extent that we can thnk of wage as a proxy for worker sklls, ths pattern mples that sklled workers have tended to beneft whle unsklled workers have fallen behnd durng the 1990s. It has been shown that skll-based techncal change was the most mportant drver of ths pattern (Acemoǧlu 2002). Whle a lower relatve demand for less sklled workers could be mportant n rasng nequalty, the polcy mplcaton from the 1990s s clear: f sklls can sheld a worker from declnng labor demand, nvestng n sklls, partcularly through educaton, s a plausble welfareenhancng polcy. The pattern for the years n Fgure 2 shows that Denmark s workers now lve n a dfferent world. Growth of jobs s ncreasngly concentrated at the tals of the occupatonal wage dstrbuton, whle the mddle of the dstrbuton s hollowed out. The employment growth pattern n Denmark s U-shaped n the 2000s, as n 8

9 many ndustralzed countres. We are nterested n better understandng the reasons for ths, and n partcular, the role played by nternatonal trade. That would also provde relevant nformaton for polcy makers, at least wth trade as an addtonal dmenson that should be consdered n the formulaton of labor market polces. 11 Smoothed Changes n Employment by Wage Percentle 100*Change n Employment Share Wage Percentle (Ranked by 1991 Occupatonal Mean Wage) Fgure 2: Smoothed Changes n Employment n Denmark by Occupatonal Wage Percentle 2.2 Shfts between manufacturng and servces, Gven ths U-shaped pattern that s the hallmark of job polarzaton, we follow the lterature and dstll the pattern nto changes for three separate groups, called low-, md-level, and hgh-wage workers (Autor 2010, Goos, Mannng, and Salomons 2014). The groups are formed based on the medan wage pad n an occupaton n an ntal 11 Whle ths paper does not focus on polcy, we touch on some of the ssues n the conclusons. Autor (2010) dscusses economc polcy ssues n the lght of job polarzaton n the U.S. 9

10 year. 12 The hgh wage occupatons comprse of manageral, professonal, and techncal occupatons. Md-level wage occupatons are clerks, craft and related trade workers, and plant and machne operators and assemblers. Fnally, low-wage occupatons nclude servce workers, shop and market sales workers, as well as elementary occupatons. 13 These wage categores capture also broad dfferences n terms of sklls across workers, although each wage group encompasses workers n qute dfferent occupatons performng rather dverse sets of tasks. Changes n Occupatonal Employment Share, Low-Wage Md-Wage Hgh-Wage Manufacturng Workers n 1999 Servce Sector Workers n 1999 Fgure 3: Changes n employment shares of low-, md-, and hgh wage occupatons by workers ntal ndustry, Fgure 3 analyzes employment growth for these three wage groups n Denmark s manufacturng and servces sector durng the years 2000 to 2009 (at the worker-level) We rank major ISCO occupatons usng the medan log hourly wage n 1991 across full-tme workers. Table A-3 n the appendx present ths rankng. Goos, Mannng, Salomons (2014) use the 1993 wages across European countres (nclusve of Denmark) and arrve at a smlar rankng as ours at the 2-dgt ISCO occupatons. 13 We follow the lterature and focus on jobs outsde of agrculture, however, the results are not affected by ths. 14 Fgure 3 s constructed usng all employees of the manufacturng and servce sectors respectvely n 1999, who were born between 1945 and The fgure shows the change n employment shares across hgh-, md-level, and low wage occupatons of these workers between 2000 and

11 The manufacturng sector employed 440,000 workers n Denmark n 1999, whle n the same year 1,800,000 workers were employed n the servce sector. The fgure shows that manufacturng s much more strongly characterzed by job polarzaton than servces. In fact, employment growth n servces s monotoncally ncreasng wth the wage, whch s the pattern of the 1990s. As we wll show below, trade does not only help to explan the U-shaped pattern n manufacturng but also the fact that employment growth n servces s monotoncally ncreasng across wage groups. Ths result confrms other fndngs that the growth of servce jobs s to some extent the flp sde of the hollowng out of md-level wage jobs n manufacturng (Autor and Dorn 2013, Utar 2015). It s useful to keep n mnd that our analyss tracks workers and ther occupaton, not ther ndustry. When Fgure 3 shows that manufacturng workers experence reductons n md-level wage employment and ncreases n low-wage employment, n prncple ths could be because workers shft wthn manufacturng from md-level to low-level jobs (wthn-ndustry shft), or because workers shft from md-level occupatons n manufacturng to low-wage occupatons n other ndustres (between-ndustry shft). If employment shares were constant over tme across ndustres, observng employment polarzaton n a partcular ndustry such as textles and clothng would mply that md-level workers such as assemblers move n roughly equal parts nto hgh wage and low wage jobs. Whle ths s n prncple possble, wthout between-ndustry shfts the potental for job polarzaton would necessarly seem to be lmted: t s dffcult to magne that many machne operators and assemblers become professonals or managers whle others become laborers, all n the same ndustry. Far from constant employment, however, the Dansh textles and clothng ndustry has been undergong massve changes n terms of sze: n the year 1999, t employed 13,000 workers, down from 25,000 n 1991, whle by the end of 2010 ndustry employment was down to 4,500 workers. 15 Part of ths reduced demand for workers producng textles n Denmark after 1999 s due to the removal of mport quotas for Chna (Utar 2014), 15 In the year 1999, textles and clothng accounted for 3 % of total manufacturng employment. 11

12 Changes n Occupatonal Employment Share, Low-Wage Md-Wage Hgh-Wage T&C Workers n 1999 Manufacturng Workers n 1999 Fgure 4: Changes n employment shares of low-, md-, and hgh wage occupatons by workers ntal ndustry, although other factors, ncludng a secular declnng trend of the labor-ntensve ndustres and technologcal factors, are surely present as well. Fgure 4 shows the patterns of job polarzaton among textles and clothng and manufacturng workers as a whole. We see that the job polarzaton pattern for textles and clothng s stronger than for manufacturng as a whole. Thus, job polarzaton n textles and clothng accounts over-proportonally for job polarzaton n manufacturng. 16 In the followng secton we move from the aggregate to the mcro level by provdng some ntal evdence on job polarzaton n Denmark based on movements between jobs by ndvdual workers. 16 It s mportant to dstngush the mpact of trade on job polarzaton at the frm- versus workerlevel. Fgure 1 n the Supplementary Appendx show occupatonal employment share changes wthn the textle and clothng sector. In that fgure, rather than followng workers and ther occupatons, we follow employment wthn the T&C sector. Along the lnes of Utar (2014), occupatonal employment share changes exhbt skll upgradng wthn the sector, more so among the frms that were exposed to mports comng from Chna. 12

13 3 Facts from ndvdual worker job transtons In ths secton we present several facts about worker transtons between occupatons n Denmark durng the sample perod by lookng at two specfc two-dgt occupatons, drvers and moble plant operators (ISCO 83) versus machne operators and assemblers (ISCO 82). Fact 1: There s substantal varaton n worker outcomes at broadly smlar wage levels but dfferent occupatons Drvers (ISCO 83) Machne Operators and Assemblers (ISCO 82) Percent Year Fgure 5: RBTC: Probablty of Stayng for Machne Operators versus Drvers Because both drvers and machne operators are among md-level wage categores (see Table A-3), reduced employment n ether of these occupatons may help to explan the overall fndng of job polarzaton. Nevertheless workers n these two occupatons experenced dfferences n ther job market experence over the sample perod. Fgure 5 shows the cumulatve probablty for a worker to stay n her ntal occupaton over 13

14 10 9 Drvers (ISCO 83) Machne Operators and Assemblers (ISCO 82) Percent Year Fgure 6: The Rse of Servce Worker Employment: Machne Operators versus Drvers the perod 2001 to Frst, note that there s a consderable amount of movement of these workers. By the year 2009, around two thrds of the workers do not work anymore n the occupaton that they worked n the year Ths s to some extent the consequence of the relatve ease of swtchng jobs (low hrng costs, low frng costs) n the Dansh labor market. Second, over these eght years there are marked dfferences n the probablty of stayng n one s ntal occupaton: n partcular, drvers stay n ther ntal occupaton wth a 15 % hgher probablty than do machne operators and assemblers. In the textle and clothng sector, operators would attend fbre-preparng-, spnnng-, and wndng machnes. They would also operate weavng, knttng, sewng, bleachng, and dyng machnes. Gven the relatvely narrow and programmable nature of ther tasks t s plausble that the tasks of these operators and assemblers are prone to beng automated 14

15 and done by robots. Ths s reflected n a relatvely hgh routne task ndex (RTI), whch s 0.64 for ths occupaton. 17, 18 In contrast, drvers n the textle and clothng sector, who would drve cars, vans, trucks, as well as forklfts, perform generally less routne tasks. A drver of a truck takes hs load to dfferent destnatons, dggers enter new terran, or the personal drver of an executve makes new runs. The occupaton of drvers has a relatvely low routne task ntensty (RTI of -0.99). Our fndng that machne operators and assemblers are less lkely to stay n ther ntal occupaton than drvers ponts to the mportance of routne-based techncal change (RBTC). Fact 2: Shrnkng md-level wage occupatons are a source of growth of low-wage occupatons, especally n servces. Fgure 6 shows the cumulatve probabltes of machne operators and drvers to transton nto personal and protectve servce occupatons (ISCO 51). These servce occupatons nclude protectve servce workers as well as housekeepers, cooks, hardressers, and travel gudes. Servce occupatons requre generally relatvely few sklls and wages are typcally low. At the same tme, servce tasks are characterzed by a relatve low level of routnzaton (RTI of -0.23). Fgure 6 shows that the cumulatve probablty that a machne operator transtons nto these servce jobs s ncreasng over tme, and by the year % of all workers that were machne operators n 2001 have moved nto person and protectve servce jobs. In contrast, drvers rarely move nto these servce worker jobs, and the cumulatve probablty s hardly ncreasng over tme. Ths s consstent wth recent evdence that the flp sde of lower employment n hgh routne tasks due to RBTC s ncreasng servce employment (Autor and Dorn 2013). Fgure 6 confrms ths result at the level of ndvdual workers. Fact 3: Import competton leads to worker transtons consstent wth job polarzaton. 17 See Autor, Levy, and Murnane (2003), Autor, and Dorn (2013). Autor (2013) dscusses ths tasks approach more broadly. 18 We thank Anna Salomons for provdng us the RTI measure used n Goos, Mannng, and Salomons (2014). 15

16 Machne Operators wth Trade Shock Machne Operators wthout Trade Shock Drvers wth Trade Shock Drvers wthout Trade Shock Percent Year Fgure 7: Import Competton and Job Polarzaton In Fgure 7 we show cumulatve transtons of drvers (ISCO 83) and machne operators and assemblers (ISCO 82) out of ther occupaton dependng on whether they were exposed to ncreased competton from Chnese producers, or not. We see that both drvers and machne operators are less lkely to stay n ther ntal occupaton n the presence of Chnese mport competton. 19 Over the entre perod of , machne operators affected by Chnese mport competton have a 29 % lower chance of stayng n ther ntal ndustry compared to machne operators not affected by mport competton. The correspondng fgure for drvers s 22 %. In the lght of our fndng that workers hghly exposed to RBTC (such as machne operators) have a 15 % hgher chance to swtch occupatons than workers lttle exposed 19 The transtons of machne operators over tme result n a smoother pcture manly because there are many more of them than drvers. In 2001 there were 2726 machne operators (ISCO 82) as opposed to only 101 drvers. 16

17 to RBTC (such as drvers), the dfference n lkelhood of stayng assocated wth trade of % appears to be szable. In secton 5 below we wll return to ths queston wth an approach that holds constant a range of worker and frm characterstcs to estmate the causal effect of trade. Before we turn to ths, the next secton ntroduces our data and descrbes the polcy change that s employed. 4 Workers facng mport competton: the data 4.1 Employee-employer matched data The man database used n ths study s the Integrated Database for Labor Market Research, IDA, whch s comprsed of person, establshment, and job fles. 20 The person fles contan annual nformaton on all persons of age resdng n Denmark wth a socal securty number. The establshment fles contan annual nformaton on all establshments wth at least one employee n the last week of November of each year. The job fles provde nformaton on all jobs that are actve n the last week of November n each year. IDA data-sets are complemented wth the domestc producton data-set (VARES) that covers all manufacturng frms wth at least 10 employees, and the annual longtudnal data-set that matches frms wth ther employees (FIDA). The data-sets are from Statstcs Denmark. For each worker we have nformaton on ther annual salary, hours worked, ndustry code of ther prmary employment, educaton level, demographc characterstcs ncludng age, gender and mmgraton status, and occupaton of prmary employment. Of partcular nterest to us here s the nformaton on workers occupatons. Occupatonal codes matter n Denmark because they nfluence a worker s wage due to a collectve barganng system. 20 See Bunzel (2008) and Tmmermans (2010) for more nformaton. 17

18 Employers and labor unons pay close attenton to occupatonal codes. Ths explans the admnstratve nature of the data. As a consequence, the qualty of occupatonal data n Denmark s hgh compared to other countres. 21 Informaton on workers occupaton closely follows the nternatonal ISCO-88 classfcaton. For most workers, occupatonal nformaton s gven at a detaled 4-dgt level. There were close to 13,000 workers n Denmark s textle and clothng ndustry n the year In our analyss we focus on workers who are n workng age (17 to 67 years) throughout our sample perod. So there are around 11,000 workers n our sample (see Table 1, Panel A for summary statstcs). The textle and clothng ndustry s a typcal manufacturng ndustry n whch plant and machnery operator tasks (ISCO occupaton code 8) play a large role; accordng to Fgure A-1, they account for more than 40 % of all workers. Nevertheless the textle and clothng ndustry employs workers performng a dverse set of tasks. Techncans and assocate professonals (ISCO 3), craft workers (ISCO 7), but also clerks (ISCO 4) account each for around 10 % of the textle and clothng workforce, whereas managers (ISCO 1) make up about 5 % (Fgure A-1). Table A-1 presents worker characterstcs for several occupaton groups separately. We see that a majorty of professonals (ISCO 2) n our sample s college educated (61 %) whereas, for example, college educated workers only consttute 6 % among craft workers (ISCO 7). Workers are on average 39 years old, ndcatng roughly the mddle of the career span. The share of female workers s 57 %, and 6 % are mmgrants (Table 1). The share of women s hghest among clerks (78 %) and lowest among managers (21 %). Eleven percent of workers are college educated, and 35 % of workers have formal vocatonal tranng. In Denmark vocatonal educaton s provded by the techncal hgh schools (after 9 years of mandatory schoolng) and nvolves several years of formalzed tranng ncludng both schoolng and apprentceshp. Roughly half of the workers have at most hgh school educaton. These fgures show that our sample ncludes workers from a range 21 See, for example, Groes, Krcher, and Manovsk (2015) on ths pont. 18

19 of skll levels, mportant for our analyss of the effects of globalzaton on manufacturng workers n advanced countres. Compared to the economy as a whole these workers belong typcally to the md-level wage group. In Table 1 we report the breakdown of workers nto a three-way wage classfcaton of occupatons. As reported n Table 1, 62 % of our workers held md-level wage jobs n the year In the emprcal analyss we also employ a number of addtonal varables to control for both worker and frm characterstcs. They nclude worker experence, measured by the number of years each worker was n the labor force between 1980 and 1999, and the worker s unemployment hstory between 1980 and 1999 (see Table 1). Also, note that 80 % of workers are labor unon members, and close to 90 % are members n Denmark s unemployment nsurance program. The hgh degree of unonzaton s one ndcaton that Denmark s labor market nsttutons are qute dfferent from those n the Unted States, for example, although t s worth notng that ths does not make them necessarly more rgd. In partcular, Denmark ranked 6th among 148 countres n terms of ts hrng and frng practces, more de-regulated than the Unted States whch came n 9th n the same rankng (Global Compettveness Report 2014). Relatvely unrestrcted hrng and frng n Denmark s combned wth actve labor market polces and a generous socal safety net to yeld a system that has been termed flexcurty. Whle the comparatvely lmted wage flexblty n Denmark leads us to focus mostly on job polarzaton n terms of employment, we wll show some results on job polarzaton n terms of earnngs as well. The Dansh producton database s used to dentfy frms wth domestc producton n one or more of the goods that were subject to the MFA quotas for Chna. We dentfy frms that n 1999 produce 8-dgt Combned Nomenclature (CN) level goods that are subject to the MFA quota removal for Chna, and usng a frm dentfer we map ths nformaton to worker-level nformaton. In the year 1999, about half of the workers are exposed to ncreased mport competton n the sense that they are employed at a frm that wll subsequently be affected by quota removals as a consequence of Chna s 19

20 accesson to the WTO. Panel (b) of Fgure A-1 compares the dstrbuton of occupatons n the exposed frms wth that n the non-exposed frms as a sample balance check. We see that plant and machne operators s the largest occupaton n both sets of frms, accountng for more than 40 % of the workforce n both exposed and non-exposed frms. The two sets of frms have also a smlar share of managers (ISCO 1). There are some dfferences, for example exposed frms have a hgher share of clerks (ISCO 4) than nonexposed frms, whle non-exposed frms have hgher share of craft workers (ISCO 7). Overall, however, we do not see major dfferences between the two sets of frms n panel (b) of Fgure A-1. Gven ther mportance n the textle and clothng ndustry, we examne the group of plant and machne operators occupatons n more detal. Table A-2 reports summary statstcs on workers ntally employed at frms that were exposed to mport competton, versus workers that were not exposed to mport competton separately. For example, sewng machne operators n exposed frms n 1999 were 95.7 % women, whle ths fracton was 94 % at non-exposed frms. We also see that 4.3 % of weavng and knttng machne operators were college educated n non-exposed frms, whle 4.9 % of these workers were college educated n exposed frms. The weavng and knttng machne operators at exposed frms had a labor market experence of about 16.5 years, compared to about 15.7 years n non-exposed frms. To the extent that longer labor market experence gves valuable sklls, and frms do not want to let go relatvely sklled workers, ths would bas the analyss aganst fndng an effect of trade on job polarzaton. The man fndng from comparng the ntal workforce n exposed and non-exposed frms though s that the dfferences are small and unlkely to explan our fndngs. 20

21 Table 1: Descrptve Statstcs Panel A. Characterstcs of Workers wth Prmary Employment n T&C n 1999 Mean SD N Age Female Immgrant College Educated Vocatonal School Educated At most Hgh School Years of Experence n the Labor Market Unemployment Hstory Index Log Hourly Wage Hgh Wage Occupaton Md Wage Occupaton Low Wage Occupaton Unon Membershp Unemployment Insurance Membershp Panel B. Man Outcome Varables Cumulatve Years of Employment n Hgh- and Low Wage Jobs net of Years of Employment n Md Wage Jobs ( ) Cumulatve Hours Worked n Hgh- and Low Wage Jobs net of Hours Worked n Md Wage Jobs ( ) Cumulatve Salary n Hgh- and Low Wage Jobs net of Salary n Md Wage Jobs ( ) Cumulatve Years of Employment n Hgh Wage Jobs ( ) Cumulatve Years of Employment n Md Wage Jobs ( ) Cumulatve Years of Employment n Low Wage Jobs ( ) Notes: Varables Female, Immgrant, Unon Membershp, UI Membershp, Hgh Wage, Md Wage and Low Wage Occupatons, College Educated, Vocatonal School Educated and At most Hgh School are worker-level ndcator varables. The Unemployment Hstory Index s the cumulatve sum of the percentage of workng tme spent as unemployed wthn each year snce Data Source: Statstcs Denmark. 21

22 4.2 Import competton through quota removals The Mult-fbre Arrangement was ntroduced n 1974 to govern world trade n the textles and clothng. Under ths agreement a large porton of textle and clothng exports from low-wage countres to more developed countres was subject to quanttatve restrctons called quotas. The arrangement provded extensve protecton for developed country textle and clothng ndustry aganst competton from low-wage country products. The lberalzaton of trade n the textle and clothng ndustry was not agreed untl the concluson of the Uruguay Round n 1995, when the Agreement on Textles and Clothng (ATC) replaced the MFA, and provsons were made for phasng t out n four steps over a perod of 10 years. Quotas were to be elmnated equvalent to 16 percent of 1990 mports at the begnnng of 1995 (Phase I), 17 percent at the begnnng of 1998 (Phase II), 18 percent at the begnnng of 2002 (Phase III), and the remanng 49 percent at the begnnng of 2005 (Phase IV). Quotas covered a wde range of both textle and clothng products rangng from bed lnens to synthetc flament yarns to shrts but at the same tme coverage wthn each broad product category vared, makng t mportant to utlze MFA quotas at a detaled product-level. For example, shawls and scarves of slk or slk waste was part of a quota restrcton for Chna whle shawls and scarves of wool and fne anmal har was not. brasseres of all types of textle materals was under quota but not corselettes of all types of textle materals. As one of the smaller members of the EU, the extensve coverage of quotas was largely exogenous to the Dansh ndustral structure. Coverage of these quotas was determned throughout 1960s and 70s and the negotatons of the MFA were held at the EU level (Spnanger 1999). Snce 1993 the quotas were also managed at the EU level. Chna dd not become elgble for quota removal untl t joned the WTO at the end of Whle there was a consderable amount of uncertanty as to whether Chna s negotatons for WTO membershp would succeed, we choose 1999 as the year to de- 22

23 termne whether a frm had a product n ts portfolo that would be subject to a quota removal to lmt any antcpaton effects. In January 2002, ts quotas on Phase I, II and III goods were removed mmedately. By beng a WTO member, Chna was also allowed to beneft from the scheduled last phase n January We utlze as our measure of mport competton the abolshment of MFA quotas for Chna n conjuncton wth her accesson to the WTO. 23 Most of the quotas for Chna had more than 90 % fllng rates. Fgure 8 shows the evoluton n textle and clothng mport shares of Chna compared to other developng countres subject to MFA quotas. Clearly Chna s the country that stands out n ths fgure. Usng transacton-level mport data, Utar (2014) confrms that the MFA quotas were bndng for Chna and both the 2002 and the 2005 quota lftng cause a substantal surge of MFA goods from Chna n Denmark wth assocated declne n unt prces of these goods. 24 As a consequence, vrtually all workers employed at frms subject to the quota removals faced ncreased mport competton from Chna. Employng a twostage least squares strategy n whch exposure to Chnese quota removal nstruments for mport competton generally leads to smlar results (see Utar 2014). For ths reason, here we employ exposure to Chnese quota removal as our treatment varable. 22 Due to a surge of Chnese mports n the frst few months of 2005 at European Unon (EU) ports n response to the fnal phase of the quota removal, the EU retaned a few of the quota categores untl Snce the sample perod extends over 2008, those few quotas are also ncluded n the current analyss. 23 Here we focus on Chna s accesson to the WTO as a shock because whle the ATC provded a schedule for gradual dsmantlng of MFA quotas already n 1995, removal of MFA quotas for Chna depended on whether and when t would jon the WTO. Furthermore, there s sgnfcant overlap between frms producng quota products subject to 2002 or 2005 phases, makng t dffcult to separate the effects of dfferent phases. Fnally, due to a surge of Chnese mports n the frst few months of 2005 at the EU ports n response to the fnal phase of the quota removal, the EU retaned a few of the quota Phase IV categores untl The selecton of the retaned categores were clearly endogenous to the EU-wde ndustral structure as t was due to the pressure of the European ndustralst. 24 Khandelwal, Schott, and We (2013) shows that the quota removal for Chna led to an extra effcency gan n Chna due to pror msmanagement of quotas by the Chnese government and the declne n prces were a result of entry of more effcent Chnese producers nto the export market. 23

24 Chna Argentna Brazl Hong Kong Inda Indonesa Korea Macao Malaysa Pakstan Peru Phllpnes Sngapore Sr Lanka Thaland Fgure 8: Import shares of Chna and other developng countres subject to MFA quotas n Dansh Textle and Clothng Imports Emprcal results To examne the role of trade for job polarzaton, we consder the followng regresson: JP emp = β 0 + β 1 T rade + Z W + Z F + ɛ (1) The dependent varable JP emp s a measure job polarzaton at the worker level (subscrpt ) over the perod from 2002 to On the rght hand sde we have the measure of trade (T rade ), as well as measures of worker (Z W ) and frm (Z F ) characterstcs. The sample conssts of all workers who are at the workng age throughout and had ther prmary employment n textles and clothng n the year Equaton (1) s a cross-sectonal, worker-level regresson relatng job polarzaton durng Chna s post- 24

25 WTO membershp perod of to worker-level characterstcs n the pre-wto year of In partcular, job polarzaton s defned as T =2009 JP emp = {Emp h t + Emp l t Emp m t }. (2) t=2002 In ths expresson, Emp x t s a dummy varable that takes the value of one f worker n year t (t = 2002,..., 2009) has held a job n hgh-, md-level, or low-wage occupatons, denoted by x = h, m, l; our classfcaton nto these three brackets follows Table A The dependent varable JP emp s the number of years that worker has held prmary employment n a hgh-wage or low-wage occupaton between 2002 and 2009, mnus the number of years that worker has worked prmarly n md-level wage occupatons. By summng over hgh- and low-wage employment after nettng out md-level employment, JP emp convenently summarzes worker s polarzaton experence. Below we wll also show results that treat the three wage groups separately. The varable T rade takes the value of one f n the year 1999 worker s employed n a frm that domestcally manufactures a product that wth Chna s entry nto the WTO s subject to the abolshment of the MFA quotas for Chna, and zero otherwse. The vector Z W ncludes the followng controls for worker n the year 1999: age, gender, mmgraton status, educaton level, and the logarthm of s average hourly wage. 26 Further, Z W ncludes ntal occupaton and educaton controls: ndcators for worker s occupaton n a hgh-, md-level, or low-level occupaton n year 1999, and ndcator varables for at least some college educaton, vocatonal educaton, and at most a (nontechncal) hgh school degree. We also nclude nformaton on worker s labor market experence before Frst, ths s the cumulatve sum of the percentage of workng tme a worker spent as unemployed wthn each year snce 1980, and the number of 25 We also use the European rankng of occupatons as provded by Goos, Mannng and Salomons (2004). It employs the two-dgt Internatonal Standard Classfcaton of Occupatons 1988 (ISCO-88), and the rankng of occupatons as hgh/md-level/low s based on the 1993 mean European wage. Our results are robust alternatvely usng European-wde rankng. 26 We take the average wage for years 1999 and 2000 to smooth out temporary effects. 25

26 years of labor market experence before Fnally, Z W ncludes ndcator varables for worker s unon and unemployment nsurance membershp status n year The vector of frm controls Z F holds constant dfferences across workers workplaces n the year 1999 that mght nduce a spurous correlaton. It ncludes the sze of the frm, measured by the number of full-tme equvalent employees, frm qualty, proxed by the logarthm of the average hourly wage pad n ths frm, as well as a measure of the strength of the frm-worker bond, whch s the percentage of workers that are not employed n the same frm from year 1998 to year In addton to the measure of job polarzaton based on years of employment, we wll employ an alternatve measure that captures changes n the hours worked of each worker. It s defned as JP hrs = T =2009 t=2002 {Hoursh t + Hours l t Hours m t } Hours t0 (3) where Hours x t s defned as the total number of hours worked by worker n year t n hgh- /md-level/low-wage wage prmary occupatons. JP hrs captures the cumulatve hours worked n hgh-wage jobs plus the hours worked n low- wage jobs, mnus hours worked n md-level wage jobs throughout for worker ; the measure s normalzed by Hours t0, whch s worker s hours worked n hs or her prmary employment n ntal year t We also present results for an earnngs polarzaton measure, defned as JP wage = T =2009 t=2002 {Earnngsh t + Earnngs l t Earnngs m t } Earnngs t0 (4) where Earnngs x t s total labor earnngs of worker from hs/her hgh-, md-level, or low-wage prmary occupaton, x = h, m, l. In the denomnator of equaton (4) are worker s ntal earnngs n hs or her prmary job. 27 To reduce measurement errors, both JP hrs and the varable JP wage, defned below, employ the average of the respectve values for years 1999 and

27 5.1 Can trade explan the U-shaped job polarzaton pattern? The estmate of β 1 n equaton (1) captures the mpact of lftng the mport quotas for Chna on Dansh workers movements away from md-level wage jobs towards hghand low wage jobs. By focusng on the textles and clothng sector we rule out that the results are affected by the secular declne of labor ntensve ndustres n advanced countres, or the correspondng secular ncrease n non-manufacturng as these forces are n effect n both the control and the treatment group. 28 In addton to ndustry we control for frm characterstcs that could have an mportant nfluence on the results. Perhaps most mportantly, the worker controls ensure that we compare workers wthn farly narrow cells, makng the workers that are exposed to mport competton vrtually dentcal to those that are not exposed to mport competton from Chna. To see whch set of varables matters we nclude them step by step. Table 2 presents the results from estmatng equaton (1) for the dependent varable JP emp. When only T rade s ncluded on the rght hand sde, β 1 s estmated at about 1.2, see column 1. The estmate ndcates that workers exposed to mport competton from Chna have more than one calendar year of addtonal employment n hgh- and low- wage jobs net of employment n md-level wage jobs over the eght years from 2002 to The shft of employment from md-level to low and hgh-wage jobs appears to be stronger for women than for men (column 2). Non-mmgrants and relatvely young workers exhbt the employment polarzaton more strongly than other workers. Includng these demographc controls has only a small effect on the T rade estmate. If workers exposed to mport competton from Chna held prmarly md-level jobs, our dependent varable would be relatvely hgh for these workers smply because they dsproportonately lose ther jobs. To account for ths we nclude ndcator varables for worker s occupaton n the year 1999 by wage categores (hgh-, md-level, and low; 28 Fgure A-2 shows that 52 % of all workers n the sample who were workng n 2009 moved to the Servce Sector by the end of Fgure A-3 shows ths fgure separately for exposed and non-exposed workers. The fgure s 60 % and 44 % respectvely for exposed and non-exposed workers. 27

28 see column 3). We fnd that the ndcators for hgh-wage and low-wage occupatons n 1999 come n postve whle the md-level occupaton ndcator s negatve; these results are plausble as they reflect the nfluence of the non-swtchers on JP emp. Controllng for ntal occupatons, we see that the T rade coeffcent s now around 0.8. We see further that college educated workers are more lkely to be experencng employment polarzaton whle workers wth vocatonal educaton less, although these coeffcents are only weakly sgnfcant. Employment polarzaton s ncreasng n worker s wage n 1999 and decreasng wth labor market experence (columns 5 and 6). Unon members and workers covered by unemployment nsurance experence employment polarzaton less strongly than other workers, presumably because they swtch out less of md-level employment than other workers (column 7). Overall, beyond the occupaton of a worker ntally, controllng for addtonal worker characterstcs has only mnor effects on the T rade coeffcent. We also add varables at the frm level on the rght hand sde of equaton (1), see column 8. Frm heterogenety mght affect workers accumulaton of human captal and may lead dvergent labor market trajectores among workers. We fnd that polarzaton s less lkely for workers employed n frms that pay relatvely hgh wages. Ths may be both because workers prefer to not leave those frms and because such frms may have prepared themselves better than other frms for the onset of mport competton from Chna. Furthermore, there s more polarzaton for workers at frms that typcally have hgh separaton rates, presumably because the frm-worker bond s less tght than n other frms. Wth all worker and frm controls ncluded, the trade effect s estmated at around 0.8 wth a robust t-statstc of about 10 (column 8). Ths means that on average exposed workers experence a gross churn of an addtonal 0.8 years of employment durng , or 0.1 employment years for each year of the sample perod. It s nterestng to note that the coeffcent estmate for female workers ncreases as other worker characterstcs are controlled for. In column (7), the coeffcent estmate 28