Homework 5

1 - Introduction

This Homework is based on the paper: The China Syndrome: Local Labor Market Effects of Import Competition in the United States, AER (2013), as in your Week 12 recitation.

The authors begin by proposing a simple measure of the growth China’s local import penetration into a local market \(i\) in the US:

\[ \Delta IPW_{uit} = \sum_{j}\frac{L_{ijt}}{L_{ujt}}\frac{\Delta M_{ucjt}}{L_{it}} \]

where:

  • \(\Delta M_{ucjt}\) is the growth in overall imports from China to the US in industry \(j\)
  • \(L_{it}\) is total employment in local labor market \(i\) at the start of period \(t\)
  • \(L_{ijt}\) is total employment in market \(i\) in industry \(j\) at the start of period \(t\)
  • \(L_{ujt}\) is total employment in the US in industry \(j\) at the start of period \(t\)

The authors estimate a series of specifications of the form:

\[ \Delta Y_{it} = \gamma_{t} + \beta_{1}\Delta IPW_{uit} + \mathbf{X}_{it}'\beta_{2} + e_{it} \]

where \(Y\) are the outcomes of interest. To isolate the portion of the change in import competition that is due to the supply side, the authors construct an instrumental variable:

\[ \Delta IPW_{oit} = \sum_{j}\frac{L_{ijt-1}}{L_{ujt-1}}\frac{\Delta M_{oct}}{L_{it-1}} \]

where:

  • \(\Delta M_{oct}\) is the change in China’s exports to other high income countries.
  • \(L_{ijt-1}\) is lagged employment and so on.

Recall the following from recitation:

  1. change in manufacturing is given by the variable d_sh_empl_mfg
  2. the change in import exposure is d_tradeusch_pw
  3. the predicted change given global trends (the instrument) is d_tradeotch_pw_lag
  4. local labor markets are defined at the commuting zone level, and so each observation in the regressions is weighted using population share of the CZ, given by timepwt48
  5. standard errors are clustered by state level
  6. Other control variables that you may need are explained in Recitation, or listed below.

Question 1

Reproduce Figure 2 Panel B from the paper (in the same way that we replicated Panel A in recitation).

Question 2:

  1. Use the fixest package to replicate the estimates from Column (6) of Table 3. Some notes on additional variables you will need (beyond what you saw in recitation):
  • l_sh_routine33 is the percentage of employment in routine occupations
  • l_task_outsource is the average offshoreability of occupations in the CZ at the beginning of the period.
  1. By reading the paper, briefly explain the logic of including the perecnt of employment in routine occupations and the average measure of offshoreability.

Question 3:

  1. Replicate the analysis in Table 4, Panel (C), in the first three columns. The additional variables you will need are:
  • lnchg_popworkage: log change in the working age population
  • lnchg_popworkage_edu_c: log change in the working age population with college education
  • lnchg_popworkage_edu_nc: log change in the working age population without a college education
  1. List one of the three potential explanations for the fact that there does not appear to be a response in population flows to import penetration.

Question 4

  1. Replicate the findings presented in Columns (5) and (6) in Table 7. You will need the additional variables:
  • lnchg_no_empl_nmfg_edu_c: log change in total non-manufacturing employment for college educated works.
  • lnchg_no_empl_nmfg_edu_nc: log change in total non-manufacturing employment for non-college educated works.
  • d_avg_lnwkwage_nmfg_c: average change in log weekly earnings for college educated workers in non-manufacturing jobs
  • d_avg_lnwkwage_nmfg_nc: average change in log weekly earnings for non-college educated workers in non-manufacturing jobs
  1. How do the authors interpret the fact that import penetration appears to have a negative impact on wages in the non-manufacturing sector?