Job Destruction and the Impact of Imports on Wages in US Manufacturing

Abstract

This paper empirically examines how job destruction affects the impact of imports on U.S. wages from 1983 to 1999. Based on Helpman et al. (Econometrica 78:1239-1283, 2010), I raise the concern that if the probability of displacing workers by imports depends on their wage level, job destruction is likely to reduce the negative effects of import competition on average industry wage. To connect Helpman, Itskhoki, and Redding to my empirical analysis, I focus on variations in workers' residual wages obtained from estimating the Mincerian wage equation. This is because Helpman, Itskhoki, and Redding focus on the wage distribution of workers with the same observed characteristics. I find that the lower the job destruction is than average, the more significant and sizeable the negative effect of import competition on the average residual wage, while the effect of import competition on the average residual wage is positive but insignificant at the 10% level at maximum job destruction. The robustness checks support this evidence. The findings imply that unemployment by increased imports leads to underestimating workers' anxiety about the negative wage effects of imports.