The Great Employment Sag if the 2000s: A European Perspective

With manufacturing employment in decline across the OECD and manufacturing imports from China surging after its ascension to the WTO in 2001, increasing attention has been devoted to comprehending the extent to which import competition has affected employment. Although the vast majority of this literature has focussed on the US, this study offers a first comprehensive account of the extent to which rising Chinese imports have induced job loss across the EU27. To that end, I apply an instrumental variable approach with multiple endogenous regressors and time fixed effects, akin to Acemoglu et al. (2016), to the World Input-Output Database. I find that the rise in Chinese import competition between 2000 and 2007 has had a profound impact, both directly and indirectly, on European manufacturing and non-manufacturing employment. By backing-out the exogenous employment changes, id est employment changes attributable to Chinese supply-side innovations, I obtain the preferred estimates that around 1.38 million manufacturing jobs and 0.23 million non-manufacturing jobs have been lost throughout the EU27 over the period 2000-2007 as a result of direct Chinese import competition. When accounting for indirect import competition from China, that is import competition in one's buyers and suppliers markets, an additional 1.04 million manufacturing and 4.1 million non-manufacturing jobs are estimated to have been lost across the EU27. Despite prior literature indicating that low­skilled workers are more susceptible to these trade-induced employment adjustments, no evidence supporting that claim can be found for the EU15. The results in this paper give rise to the notion that devising a sustainable EU trade policy, through for instance employment-driven fiscal transfers, is substantially complicated by the extensive indirect effects and the influence that local labour market policy preferences may have on these employment losses. In addition, I infer that the substantial labour displacement in the EU12 in conjunction with small within-nation social transfers, may have increased within-nation inequality in the EU12. As such, from an equality point of view, further economic integration with China at present may not be desirable.