Delivering Close to Home
Labor markets and incarceration: The China shock to American punishment
John Clegg & Adaner Usmani
Criminology, November 2023, Pages 957-993
Abstract:
Studies have failed to show a positive effect of unemployment on incarceration despite reasons to expect such a relationship. We note that prior estimates have been muddied by the absence of substate data, a focus on prisons rather than on jails, limited measures of unemployment, and the fact that the health of the labor market is endogenous to incarceration. We instrument for local exposure to the rise of Chinese exports (“the China Shock”) to estimate the effect of job loss on American incarceration. Marshaling a new data set of prisoners and jail inmates by race at the commuting zone level, we show that negative shocks to local labor markets led to significant increases in total incarceration rates for both Blacks and Whites. The effect seems to be driven by increased prison rather than jail populations. This estimate is invisible to ordinary least squares, which may help explain null results reported by past work. Counterfactual exercises suggest that the effect of job loss was punitively consequential. Had employment gains from the 1990s been preserved into the 2000s, the U.S. incarceration rate would have grown significantly less than it did.
The Effects of Import Competition on Unionization
John Ahlquist & Mitch Downey
American Economic Journal: Economic Policy, November 2023, Pages 359-389
Abstract:
We study direct and indirect effects of Chinese import competition on union membership in the United States, 1990–2014. Import competition in manufacturing induced a modest decline in unionization within manufacturing industries. The magnitude is small because unionized manufacturers competed in higher-quality product segments. Manufacturers in right-to-work states experienced more direct competition with low-quality Chinese imports. Outside of manufacturing, however, import competition causes an important increase in union membership, as less educated women shift away from retail and toward jobs in health care and education where unions are stronger. We calculate that Chinese imports prevented 26 percent of the union density decline that would have otherwise occurred.
Why is Trade Not Free? A Revealed Preference Approach
Rodrigo Adão et al.
NBER Working Paper, October 2023
Abstract:
A prominent explanation for why trade is not free is politicians’ desire to protect some of their constituents at the expense of others. In this paper we develop a methodology that can be used to reveal the welfare weights that a nation’s import tariffs implicitly place on different groups of society. Applied in the context of the United States in 2017, this method implies that redistributive trade protection accounts for a significant fraction of US tariff variation and causes large monetary transfers between US individuals, mostly driven by differences in welfare weights across sectors of employment. Perhaps surprisingly, differences in welfare weights across US states play a much smaller role.
“Wars without Gun Smoke”: Global Supply Chains, Power Transitions, and Economic Statecraft
Ling Chen & Miles Evers
International Security, Fall 2023, Pages 164–204
Abstract:
Conventional wisdom holds that conflict is highly likely during a power transition between declining and rising powers. The spread of global supply chains has provided new economic weapons for great powers waging these conflicts, but the businesses that constitute global supply chains can make it harder or easier for them to do so. A structural theory of business-state relations shows how power transitions affect a state's ability to exercise economic statecraft. As a dominant power and a rising power approach parity, they face structural incentives to use economic statecraft to decouple their economies. The resulting threat to businesses’ profits changes business-state relations: high-value businesses within the dominant power tend to oppose their state's use of economic statecraft, whereas low-value businesses within the rising power tend to cooperate with their state's use of economic statecraft. The Anglo-German power transition from 1890 to 1914 and the U.S.-China power transition since 1990 illustrate the theory. The findings shift scholarly debates on the use of economic statecraft in modern great power competition and have policy implications for weaponizing supply chains against rising powers like China.
Importing the Opioid Crisis? International Trade and Fentanyl Overdoses
Timothy Moore, William Olney & Benjamin Hansen
NBER Working Paper, November 2023
Abstract:
The U.S. opioid crisis is now driven by fentanyl, a powerful synthetic opioid that currently accounts for 90% of all opioid deaths. Fentanyl is smuggled from abroad, with little evidence on how this happens. We show that a substantial amount of fentanyl smuggling occurs via legal trade flows, with a positive relationship between state-level imports and drug overdoses that accounts for 15,000-20,000 deaths per year. This relationship is not explained by geographic differences in "deaths of despair,'' general demand for opioids, or job losses from import competition. Our results suggest that fentanyl smuggling via imports is pervasive and a key determinant of opioid problems.
Winners and Losers from the U.S.-China Trade War
Alicia Dang, Kala Krishna & Yingyan Zhao
NBER Working Paper, November 2023
Abstract:
We investigate the phenomenon of trade re-allocations across countries as a result of the U.S.- China trade war. Using quarterly data on U.S. imports, we find evidence, as do others, of trade diversion in a range of industries and products, including products not targeted by U.S. tariffs on China. We are however the first to ask what seems to drive these trade reallocation activities. First, we show that they seem to be driven by differences in comparative advantage across countries: countries with a greater revealed comparative advantage in a product benefit (in terms of exports to the U.S.) more from U.S. tariffs on China. Second, we show that there is evidence of spillovers to similar non-targeted products: products in similar industries (as defined by their HS codes) are also similarly affected. This is consistent with the colocation effects. Third, our findings also suggest that bystander countries with greater capital abundance are more heavily impacted in capital-intensive industries, suggesting that a higher proportion of more flexible or transferable assets provides flexibility to alter production to respond to new trade opportunities. Finally, we show that the countries that export more to the U.S. as a result of the tariffs on China also export more to other countries. This suggests that firms are entering these countries and once there, export not just to the U.S. but everywhere.
Evaluating Tax Harmonization
James Hines
NBER Working Paper, November 2023
Abstract:
Tax harmonization entails a uniform rate that may not suit all governments. Harmonization can advance collective governmental objectives only if the standard deviation of tax rates is less than the average downward effect of tax competition on rates. Since an efficient harmonized tax rate undoes the effect of competition, an efficient rate equals or exceeds the sum of the observed average tax rate and the standard deviation of rates. In 2020, the mean world corporate tax rate was 25.9%, and the standard deviation 4.5%, so if there is an efficient harmonized world tax rate, it must be 30.4% or higher.
Unintended Consequences: International Trade Shocks and Electoral Outcomes During the Second Spanish Republic, 1931-1936
Concepción Betrán & Michael Huberman
Explorations in Economic History, forthcoming
Abstract:
An intractable domestic conflict between forces on the right and the left roiled the Second Spanish Republic (1931-1939). We claim that international trade shocks exacerbated political instability. Leveraging an exposure design and disaggregated trade and employment data, we study the effects of import and export exposure on vote shares of parties and coalitions in the Republic's three elections, 1931, 1933, and 1936. Increased import exposure had a modest effect on election outcomes. The primary vector of change was the disruption in export markets caused by the world depression and discriminatory trade practices, most importantly the United Kingdom's adoption of imperial preference. Trade dislocation harmed the left and benefitted the right. If trade had remained at 1928 levels, our projections show that the Popular Front would have gained a clear and comfortable majority in the decisive 1936 election.
International Trade Responses to Labor Market Regulations
Mathilde Muñoz
NBER Working Paper, November 2023
Abstract:
This paper studies how differences in labor market regulations shape countries' comparative advantage in the cross-border provision of labor-intensive services, using administrative data in Europe for the last two decades. I exploit exogenous variation in labor taxes and minimum wages faced by exporting firms engaged in a large European trade program. Firms from different countries compete to supply the same physical service in the same location but their employees are subject to different payroll taxes and minimum wages. These rules varied across countries, sectors, and over time. Reduced-form country case-studies as well as model-implied gravity estimates show evidence of large trade responses to lower labor taxes and minimum wages, with an elasticity that is around one. The Bolkestein directive, by exempting foreign firms from all labor regulations in the destination country, would have doubled exports of physical services from Eastern European countries, rationalizing the wave of protests in high-wage countries that led to the withdrawal of the proposal.