Understanding the Role of China in the ‘Decline’ of US Manufacturing

Type Working Paper - Manuscript, Hebrew University of Jerusalem
Title Understanding the Role of China in the ‘Decline’ of US Manufacturing
Publication (Day/Month/Year) 2011
URL http://margaretsmcmillan.com/wp-content/uploads/2012/03/5_Ebenstein-et-al.-US-Manufacturing-and-Chin​a-November-2011.pdf
This paper examines China’s role in declining US manufacturing employment and
increasing productivity. We present a set of empirical facts using micro-census data from 1990
and 2005 that suggest that rapid increases in trade between the two countries has been
underestimated as an explanation for these trends. First, Chinese employment growth has been
largest in industries with US employment declines, suggesting substitution between US and
Chinese workers. Second, during the sample period, while the share of workers performing
routine occupations in the US declined, the share increased in China, and these changes were
correlated across industries. We also find correlated increases in the manager to worker ratio in
the US and declines in this ratio in China, implying that more routine tasks of the production
process are being sent overseas. Third, we document that Chinese employment growth by
industry is highly correlated with declining unit labor costs and productivity growth in the US,
suggesting that the rapid US productivity growth is directly related to trade with China. We then
examine the association between Chinese employment growth and profits and wages among US
firms and workers. We find that within manufacturing, Chinese employment growth is correlated
with corporate profit growth and increasing wage inequality among the remaining US
manufacturing workers. Our results suggest that the role of technological progress (e.g.
automation) may be overstated relative to trade-based explanations for recent trends in
productivity growth and employment decline in US manufacturing.

Related studies