Labor market consequences of trade openness and competition in foreign markets

Abstract

We analyze the labor market consequences of international trade, using the evidence provided by the behavior of Mexican labor markets after the introduction of NAFTA in the nineties and the accession of China to the WTO in 2001. Following an approach close to that proposed by Autor, Dorn and Hanson (2013), we use the local market variation on exposure to international markets to identify the effects of these events. We show that NAFTA integration reduced unemployment, and boosted employment and wages. Chinese competition tended to have the opposite effect. Additionally, we find that the labor market responses to international trade are heterogeneous across regions in the country, being significantly stronger in the regions closer to the U.S. border.

Localization of manufacturing industries and specialization in Mexican states: 1993–2013

“…Subsequently, we see a decrease in the levels of localization and specialization in the manufacturing sector nationally in the subperiod 2003–2013. This is explained by China's entry to the WTO and the consequent increase in its exports to the US, which led to a decrease in Mexico's share of imports to that country (Chiquiar et al ). This implies that China tempered the impact that NAFTA had had on levels of localization and specialization by displacing some of the market share of Mexico's exporting subsectors and of the states in the country's north, which was where the focus of manufacturing activity had shifted from 1994 on.…”

“…From 1993 to 2003, the specialization coefficient increased in 75 per cent of the states, whereas from 2003 to 2013 this was true for only 46 per cent. The increase in the level of state specialization following the introduction of NAFTA slowed down after 2001 due to the effect of increased competition from China on the country's exporting states (see Chiquiar et al ).…”

“…Hanson () analyses employment data from the manufacturing sector and makes two main assertions: first, manufacturing companies sought to reduce their transport costs by relocating to states closer to the US (now the most important market), thereby breaking up the manufacturing belt around Mexico City (until then the most important market) ; and second, due to important linkage effects, companies were motivated to relocate, that is, closer to their suppliers or the buyers of their products. Chiquiar et al () analyse the impact of international trade on the labour market in different metro areas and assert that, as a result of NAFTA, employment and wages in the manufacturing sector increased. In contrast, they document that the increase in US imports from China following the latter's incorporation into the World Trade Organization (WTO) negatively impacted employment and wages in Mexico.…”

Economic liberalization and external shocks. The hypothesis of convergence revisited for the Mexican states, 1994–2015

“…In the case of the Mexican economy, this meant greater competition from Chinese products against Mexican exports to the United States. In fact, the greater commercial integration due to NAFTA favored the income levels in the states bordering the United States, while the Chinese shock had the opposite effect (Chiquiar, Covarrubias, and Salcedo, ). However, it is worth mentioning that this represented a weaker relationship between Mexico's and United States’ manufacturing sector, which turned out to be temporary since the Mexican economy reassigned resources to sectors where it remained competitive (Chiquiar and Ramos‐Francis ).…”

La Participación Laboral y el Ciclo Económico en México

“…Dadas las marcadas diferencias entre los mercados laborales de las entidades federativas en México, esta hipótesis no parece adecuada, por lo tanto, consideramos que la brecha de desempleo obtenida al aplicar el filtro HP a la tasa de desempleo agregada en cada estado es una mejor estimación del valor real de la brecha de desempleo a este nivel. Para un análisis más detallado de la dinámica de los mercados laborales locales, véaseChiquiar et al (2017).16 Para modelos que no tienen término autorregresivo (especificaciones uno a cinco) el FCT es simplemente la suma de todos los coeficientes de la brecha de desempleo en la ecuación ∑ =0 . Por el contrario, en los modelos…”