Trade with China decreases U.S. producer prices in trade-affected sectors, but the decreases are due primarily to increases in total factor productivity (TFP), not lower wages. Dani Rodrik (via Mark Thoma) wonders why the increased competition from China increases TFP:
Perhaps what is happening is a kind of industry rationalization--exit of the least efficient firms--in which case we should see this restructuring and the associated layoffs in the data as well. Moreover, labor does not exactly come out unharmed in this case either. It is after all job loss, and the threat thereof, that workers complain about.Dani: look to the immigration literature. The effect of immigration of unskilled workers should be to lower wages for unskilled native workers, right? But it does so only marginally. Instead, the increased competition for low-skilled jobs often forces unskilled native workers to move to other cities and other industries—in effect, it causes a restructuring of the labor market. This National Academy of Sciences report on the effects of immigration puts it best:
[Studies of a particular industry in a particular city] typically trace the employment patterns in an industry as it is penetrated by immigrants. Often, they find substantial "displacement"—in the sense that native workers leave the industry as the immigrants enter it. ... However, such studies are not inconsistent with our overall conclusion that immigrants have no large negative impact on wages. ... [T]hese case studies are asking a question different from ours: employment displacement may well be very large without any noticeable wage adjustment if the displaced workers find employment often in other industries or in other areas of the country. ... [T]he evidence that the wages and employment of natives are not substantially lower in areas with large numbers of immigrants suggests that, if substantial displacement occurs, displaced workers must either find other jobs with similar pay or move to other areas.Assuming that trade with China has more or less the same effect as the immigration of unskilled workers, then trade with China would also induce a restructuring of the labor market. Dani Rodrik is right. He, unlike Naomi Klein, is smart.