Foreign competition and technological change might seem like twin juggernauts, destroying American manufacturing jobs in much the same way. In fact, they're quite different.
Foreign competition from China can be like a tornado, devastating US manufacturing in concentrated fashion but in limited areas around the country, according to a new study from the National Bureau of Economic Research (NBER). The winds of technological change blow much more broadly and less destructively, displacing typically middle-income jobs but creating more low-paying and high-paying positions.
There's another major difference: As of 2007, at least, the foreign competition tornado was growing bigger and threatening more manufacturing jobs; the winds of technological change are lessening in the manufacturing sector and have moved on to nonmanufacturing industries.
“Outside of manufacturing ... the impact of automation accelerates during the three decades of our sample, suggesting that computerization of information processing activities in knowledge-intensive industries continues to intensify," conclude economists David Autor of the Massachusetts Institute of Technology, David Dorn of Spain's graduate education institute CEMFI in Madrid, and Gordon Hanson of the University of California at San Diego, the authors of the NBER study.
They compare the effects of trade competition stemming from rising Chinese imports with the impact of computerization in local labor markets – specifically, 722 commuting zones (CZs) that make up the mainland United States from 1990 to 2007.
Viewed that way, the effects of Chinese import competition is quite destructive but only for certain localities. For example, the CZ containing manufacturing-dependent Providence, R.I., took an average hit of $2,330 per worker in increased Chinese goods between 1991 and 2000. In other words, for every worker in the region, Chinese imports replaced an average $2,330 worth of goods that might have been made locally. And the effect was even stronger the following decade: between 2000 and 2007, that impact rose to $3,490 per worker.
By contrast, the New Orleans CZ has few industries directly competing with China and saw import per-worker exposure of only $170 in the earlier period and $490 in the latter one. Eight states – Tennessee, Missouri, Arkansas, Mississippi, Alabama, Georgia, North Carolina, and Indiana – contain a substantial share of the CZs most exposed to trade, the study finds.
Trade shocks are equal-opportunity job destroyers. They hit young and old, male and female with roughly equal force. It's the least educated that get hit the hardest. According to the study, a $1,000 rise in import exposure per worker lowers the employment rate of noncollege workers by an estimated 1.21 percentage points, more than double the impact on college workers.
Computerization works much differently. Its effects are spread throughout the US and it hits women harder than men. A CZ with lots of jobs at risk of being computerized (at the 75th percentile of exposure, to use the economists' jargon) typically sees a decline of 1.8 percentage points in the female employment-to-population ratio over a decade compared with a CZ at the 25th percentile.
The activities exposed to automation – which the economists call routine-task intensive occupations – used to provide lots of middle-class jobs. Think secretaries before the personal computer, bank tellers before the automated teller machine, and drafters before the advent of computer-aided design. Routine-task intensive occupations on America's assembly lines are hit particularly hard. They can be replaced by a robot – or cheaper factory labor in Shenzhen and Guangzhou.
If all this sounds familiar, it's probably because Dr. Autor of MIT has done previous groundbreaking work on the loss of these routine-task intensive jobs and how they're a major factor behind the decline of the middle class. In this study, he and his colleagues show how both foreign competition and technological change hit these types of jobs, but affect other types of occupations much differently.
For example, Chinese imports also eliminate manual-task-intensive jobs (janitors, security guards, etc.) and, to a lesser extent, abstract-task-intensive positions like managers and technical workers in US factories. Computerization, however, appears to add jobs in these occupations at the lower end (janitors) and at the higher end (technical workers). Thus, foreign competition eliminates jobs across all spectrums; technology just hollows out the middle and adds jobs to the bottom and top with little or no net employment loss.
"Trade competition leads to sharp declines in local manufacturing employment, with corresponding growth in local unemployment and non-employment, particularly among workers without college education," the study concludes. "In contrast, exposure to technological change has largely neutral effects on overall employment, yet leads to substantial polarization of occupational composition within sectors.”