Trade liberalization with China reduced US gender pay gap by destroying jobs

February 12, 2021
Normalization of trade helps heal the gender gap, but at a cost. (AP Photo/Stephen B. Morton)

Normalization of trade helps heal the gender gap, but at a cost. (AP Photo/Stephen B. Morton)

The normalization of trade relations between the U.S. and China in the 2000s significantly reduced the gender pay gap between men and women in U.S. regions that were vulnerable to offshoring and outsourcing, new research has shown, as some men dropped out of the labor force and women stepped in. 

The manufacturing industry, which shed millions of jobs amid Chinese competition, was primarily staffed by lower-educated men. As these men were laid off and some dropped out of the labor force, women who had previously stayed at home started working in order to offset lost family income, according to the researchers. 

While reducing gender inequality is an admirable goal, the researchers said, the relative gains for women coincided with losses for men. In addition, some women who would have otherwise preferred to stay home may have been forced to start working. 

“From a societal point of view, these changes look good. But the way they happened was not exactly good,” said co-author Tibor Besedes, an economist at the Georgia Institute of Technology. “If one group gains while another group loses, that’s not what you want to see.” 

Besedes wrote the paper, which is forthcoming in the March 2021 issue of the Journal of Economic Behavior and Organization, alongside fellow Georgia Tech economist Seung Hoon Lee and Ph.D. student Tongyang Yang.

The researchers also found that women entering the labor force were more likely than men to work part-time jobs — not because women didn’t want full-time jobs, but because full-time jobs were not available. 

“One of the consequences of that is that part-time jobs don’t have benefits,” said Besedes. “So welfare wise, it isn’t a positive change one would like to see.”

He added that this period, “starts to coincide, maybe predates a little, the rise of the gig economy."

The U.S. granted Permanent Normal Trade Relations to China in 2001, indicating to U.S. companies that they could import goods from China with low tariffs for the foreseeable future. In response, U.S. firms were comfortable shifting manufacturing and building supply chains overseas in order to utilize cheap, non-union labor. 

To measure the impact of trade normalization with China on various U.S. regions, the researchers used a metric called the “Normal Trade Relations Gap,” or “NTR Gap.” The NTR Gap creates a score showing each region’s exposure to trade normalization by comparing the pre-liberalization tariffs to post-liberalization tariffs on goods produced by that region. 

For example, the researchers found that the Hickory-Morganton, North Carolina, metropolitan area had the highest NTR Gap score of any U.S. region, likely due to its status as a center of furniture manufacturing. By contrast, the petroleum and natural gas-rich Farmington, New Mexico, metropolitan area had the lowest NTR Gap score. 

The gender wage gap decreased more significantly in regions with higher NTR Gap scores, the researchers found. 

“The more exposed you are [to trade with China], the gender gap decreased by more,” said Besedes. 

In addition, researchers found that as the number of single-earner households where the sole breadwinner was the man decreased in areas affected by Chinese trade, the number of households where only a woman worked increased. In addition, women’s wages shifted to make up a larger share of household income.

The findings come as the Biden administration seeks to balance a commitment to reduce tensions with China with stimulating economic growth in the U.S. following a tumultuous four years of tariff tensions under former President Donald Trump. 

While the Biden administration has been assertive about rolling back some signature Trump-era economic initiatives by rejoining the Paris climate agreement and cancelling the Keystone XL pipeline, the new president has been far more hesitant than his Democratic predecessor, Barack Obama, when it comes to embracing free trade with China. 

To help U.S. workers, Besedes said that Biden should expand federal programs that assist workers who lost their jobs due to offshoring and outsourcing, such as the Trade Adjustment Assistance program, which provides training and job placement services to workers who can prove they lost their jobs because of changes in trade. 

“The overarching policy recommendation would be to strengthen programs out there that allow individuals who lose their jobs to obtain new skills,” said Besedes. 

The co-authors started work on the paper in 2018, and it was accepted for journal publication in December of last year. 

Yang, the graduate student, conducted most of the statistical and econometric work herself, according to Besedes. The three co-authors then wrote the paper together. 

The paper, titled Trade liberalization and gender gaps in local labor market outcomes: Dimensions of adjustment in the United States, is forthcoming in the March 2021 issue of the Journal of Economic Behavior and OrganizationThe co-authors are Tibor Besedes, Seung Hoon Lee and Tongyang Yang of the Georgia Institute of Technology.

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