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Minimum wages and the China syndrome: causal evidence from US local labor markets

Heath Milsom, Luke and Roland, Isabelle (2021) Minimum wages and the China syndrome: causal evidence from US local labor markets. CEP Discussion Papers (1807). Centre for Economic Performance, LSE, London, UK.

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Abstract

Exposure to Chinese import competition led to significant manufacturing job losses in the United States. Local labor markets, however, differ significantly in how they fared with respect to manufacturing employment. An important question is whether labor market institutions have an impact on the dynamic response of manufacturing employment to rising import penetration. We contribute to this debate by showing that minimum wages amplified the negative effect of Chinese import penetration on manufacturing employment in US local labor markets between 2000 and 2007. We develop a rigorous double-edged identification strategy. First, we construct shift-share instrumental variables to address the endogeneity of import penetration. Second, we use a border identification strategy to distinguish the effects of minimum wage policies from the effects of other local labor market characteristics that are unrelated to policy. Specifically, we rely on comparing commuting zones that are contiguous to each other but located in different states with different minimum wage policies. The approach essentially considers what happens to the response of manufacturing employment to import penetration when one crosses a policy border.

Item Type: Monograph (Discussion Paper)
Official URL: https://cep.lse.ac.uk/_new/publications/discussion...
Additional Information: © 2021 The Authors
Divisions: Centre for Economic Performance
Subjects: H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HB Economic Theory
JEL classification: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E24 - Macroeconomics: Employment; Unemployment; Wages; Intergenerational Income Distribution (includes wage indexation)
F - International Economics > F1 - Trade > F14 - Country and Industry Studies of Trade
F - International Economics > F1 - Trade > F16 - Trade and Labor Market Interactions
J - Labor and Demographic Economics > J2 - Time Allocation, Work Behavior, and Employment Determination and Creation; Human Capital; Retirement > J23 - Employment Determination; Job Creation; Demand for Labor; Self-Employment
L - Industrial Organization > L6 - Industry Studies: Manufacturing > L60 - General
R - Urban, Rural, and Regional Economics > R1 - General Regional Economics > R12 - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade
Date Deposited: 28 Feb 2022 11:18
Last Modified: 01 Mar 2022 00:03
URI: http://eprints.lse.ac.uk/id/eprint/113850

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