“Re-examining the Effects of Trading with China on Local Labor Markets: A Supply Chain Perspective”

From the paper by Zhi WangShang-Jin WeiXinding Yu & Kunfu Zhu:

The United States imports intermediate inputs from China, helping downstream US firms to expand employment. Using a cross-regional reduced-form specification but differing from the existing literature, this paper (a) incorporates a supply chain perspective, (b) uses intermediate input imports rather than total imports in computing the downstream exposure, and (c) uses exporter-specific information to allocate imported inputs across US sectors. We find robust evidence that the total impact of trading with China is a positive boost to local employment and real wages. The most important factor is employment stimulation outside the manufacturing sector through the downstream channel. This overturns the received wisdom from the reduced-form literature and provides statistical support for a key mechanism hypothesized in general equilibrium spatial models.

Ungated version here. This is a slightly older paper (2018). A paper with related findings by Feenstra and Sasahara (2018) here, while ungated working paper version is here.

This is a reminder that import competition has direct impacts, but international trade allows firms access to lower cost inputs, and benefiting from comparative advantage. Separate from the question of net benefits is whether costs imposed on those negatively impacted outweigh those who gain, either in dollar or “util” terms.

Infrastructure Investment and Taxes

I talked about infrastructure investment and taxes on WPR  yesterday. Will higher corporate tax rates and closing of loopholes in the taxation of corporations  raise prices of goods produced? Given what happened in the wake of the 2017 reduction in corporate tax rates (i.e., lots of stock buybacks, not much higher investment), I think a resulting price increase not likely. On the other hand, the infrastructure spending could have an impact on productivity and hence prices.

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Employment Surges to 5.5% below Feb 2020

The economy added 916,000 jobs in March, above the Bloomberg consensus of 647,000.

Figure 1: Nonfarm payroll employment (dark blue), Bloomberg consensus as of 4/1 for March nonfarm payroll employment (light blue square), industrial production (red),  personal income excluding transfers in Ch.2012$ (green), manufacturing and trade sales in Ch.2012$ (black), consumption in Ch.2012$ (light blue), and monthly GDP in Ch.2012$ (pink), all log normalized to 2020M02=0. Source: BLS, Federal Reserve, BEA, via FRED, IHS Markit (nee Macroeconomic Advisers) (3/1/2021 release), NBER, and author’s calculations.

On the strength of the labor market, see Baum and Klein at EconoFact.

Business Cycle Indicators at the Beginning of April

The Bloomberg consensus is for an increase of 674 thousand jobs in March (GS says 775K). That’s heady news, offsetting the somewhat less upbeat news from the estimate of February monthly GDP released by IHS Markit today – a decrease of 0.9% after upward revision in January’s figure by 0.3% (not annualized). Even if expectations are met, employment will still be 5.8% below that recorded at  the NBER peak in February 2020. In the context of key macro indicators followed by the  NBER Business Cycle Dating Committee:

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