The Impact of Imports in the U.S. Labor Market, A Comparison of the Top Three U.S. Trading Partners: Mexico, Canada, and China
Diaz Gonzalez Basurto, Porfirio
This paper examines the effect of U.S. imports from Mexico on state-level unemployment rates compared to imports from Canada and China. Given the high degree of economic integration between the U.S. with Mexico and Canada, and the high degree of domestic content in imports from these countries, I expect a positive relationship with local employment. In contrast, the low level of domestic content from Chinese imports should negatively affect local market outcomes. The results suggest that imports from Canada and China have an effect consistent with my hypothesis such that trade between countries that share production is associated with lower unemployment while imports from countries that mostly trade final goods have an adverse effect on unemployment rates. Results from Mexico are inconsistent with this hypothesis. Despite having almost 40 percent of U.S. content, imports from Mexico have a similar effect as imports from China and are associated with higher state-level unemployment rates. I conclude that the large wage differential between the U.S and Mexico continues to be the main driver behind the effect of imports on the labor market. As Mexican wages begin to rise, production sharing will become the driver of the effect between imports and employment rates.
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