Short- and Long-Run Labor Market Adjustment to Import Competition
Date issued
Jan 2023
Summary
Subject
Labor Force;
Small Business;
Labor;
Wage;
Competitiveness;
Manufacturing Industry;
Industry;
Labor Market;
Import
JEL code
F14 - Empirical Studies of Trade;
F16 - Trade and Labor Market Interactions;
J23 - Labor Demand
Country
Mexico;
Mexico
Category
Working Papers
By exploiting spatial variation in import exposure arising from initial differences in industry specialization, we analyze how local labor markets in Mexico adjusted to increased Chinese-import competition over different time horizons. The initial adjustment to the shock took various forms: a decline in the number of wage employees, a substitution of wage employees with piece-rate or outsourced workers, and a substitution of formal employees with informal employees. The negative effects on employment were mainly associated with job destruction from exiting firms, particularly those that were small and medium-sized. During periods in which employment fell, the population that actively participated in the labor force fell. The negative short- and medium-run effects mostly disappeared after 20 years.
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