International Trade and Job Polarization: Evidence at the Worker Level

Job polarization is the shift of employment and earnings from mid-level wage jobs to both high- and low-wage jobs. Using longitudinal employee-employer matched data covering all residents and workplaces in Denmark, we study the effect of international trade on job polarization as trade barriers fell away with China's entry into the World Trade Organization. We show that trade can explain the U-shaped pattern of employment changes that is characteristic for job polarization. For the large mid-level wage group of machine operators, already adversely by automatization and the introduction of robots, import competition leads to a loss of eight months of mid-wage employment, and increases of both low-wage and high-wage employment of about four months and one month respectively over a period of eight years. Trade leads to job polarization mainly by shifting workers from initially abundant manufacturing jobs to both high- and low-paying services jobs. Trade leads to less job polarization for women than for men even though women experience overall job polarization more than men, a finding that we relate to the swiftness of the reduction in labor demand caused by import competition. Furthermore, trade has increased gender inequality by shifting women to a lesser extent into high-wage jobs than men. We discuss a number of reasons that might be behind these findings, as well as possible policy implications.