The Effect of Trade Induced Displacement on Unemployment and Wages

This study provides an investigation into the differences in the postdisplacement labor market experiences of workers separated from declining traded, expanding traded and nontraded industries. The results presented provide the beginnings of a bridge across the gap between what is known and what is perceived regarding the allocative efficiency effects of trade-related labor displacements. The strategy of the paper is to relate the postdisplacement experience of individuals to changes in the competitive position of the industry from which the individual was displaced. The investigative lens is primarily focused on the impact of changing industry competitiveness on the duration of unemployment spells and the change in wages accompanying displacement. The findings are that workers from traded industries in general suffer greater hardhip after displacement than do nontraded workers. They incur both a longer spell of unemployment and a greater loss of earnings. Within traded industries, workers separated from declining traded industries fare much worse than those from expanding traded industries. This evidnece regarding the duration of the unemployment spell is then combined with previous results regarding trade related displacements to provide an accounting of the change in the aggregatenumber of weeks of unemployment resulting from changing trade patterns. The finding is that although expansion of traded industries was sufficient to offset the displacement effects of contracting traded industries, the longer spell of unemployment by those from contracting industries results in a significant increase unemployed resources.