1. Import competition and company training: evidence from the U.S. microdata on individuals Hao-Chung Li Department of Economics, University of Southern California Introduction This paper studies the effect of import competition on company training in the United States. This new focus on company training is important, since such training is an important factor in a worker’s lifetime earnings and job security. Overall, I find that: Import competition has a substantial negative effect on company training, especially for non-production workers. Low- and middle- income country imports have a severe negative effect on training while high-income country imports do not. There is no significant difference between the effect of imports in high- and low-technology industries. I always find a negative effect. Final goods imports in an industry have a significant negative effect on training while imported intermediate goods do not. From my results, it is not surprising that there is pressure to limit import competition, especially from low- or middle- income countries, since reduced training opportunities for U.S. workers can be perceived as reducing “good jobs.” Data and empirical framework I use the National Longitudinal Survey of the Youth dataset and merge it with trade and industry variables. I focus on male workers in manufacturing in years 1988-96. For my baseline specification, I adopt a linear probability framework for an individual i in region r, industry j, and at time t: Y ijrt : Indicator of having received training in the past year. impen jt-1 : Import penetration measure (lagged). X it : A vector of individual characteristics. Z jt-1 : A vector of industry characteristics (lagged). η j : A vector of industry dummies. φ rt : A vector of region-time dummies. I have also added θ i to represent individual unobserved characteristics, and use random effects estimation. Literature cited Aghion, Philippe, R Blundell, R Griffith, P Howitt, and S. Prantl.(2009). “The effects of entry on incumbent innovation and productivity.” The Review of Economics and Statistics 91(1): 20-32. Bernard, A., Jansen, J.B., and P. Schott (2006). “Survival of the best fit: low wage competition and the (uneven) growth of U.S. manufacturing plants.” Journal of International Economics: 219-37. Results Baseline Result Table 1: The effect of import competition on company training My baseline estimation shows that there is a negative effect of import competition on company training, with the effect mainly falls on non-production worker. The magnitude of the effect is very large—a 1 percentage point increase in import penetration decrease training probability by 0.006. This implies that if import penetration remain constant throughout my sample period, a worker will have 25% more chance to receive training each year. Confirmation of Hypothesis 1 Table 2: Comparison of the Effects on Training of Imports from Countries of Different Income Levels (all workers) Refuting Hypothesis 2 Table 3:Comparison of the Effects of Imports in High-Tech (High- R&D) and Low-Tech (Low-R&D) Industries (all workers) Contrary to my hypothesis, I find that the effects of import competition on training is negative in both high-tech and low- tech industries, and their magnitudes are not significantly different. In fact, the negative effects of low- and middle-income countries are also similar in both high- and low-tech industries. One potential reason is that although the U.S. firms have more room for quality improvement in high-tech industries, their foreign competitors may also improve fast in these industries. This implies that U.S. firms may not be able to widen the quality gap between its product and that of foreigners, and this will lower firms’ incentive to train workers. Confirmation of Hypothesis 3 Table 4: Comparison of the effects of intermediate and final goods imports (all workers) Bartel, A. and N. Sicherman (1998). "Technological change and the skill acquisition of young workers." Journal of Labor Economics. Feenstra, R and G. Hanson (1999). “The impact of outsourcing and high- technology capital on wages: estimates for the United States, 1979-1990.” Quarterly Journal of Economics, 114 (3). Conclusion In this paper, I find that import competition has a substantial negative effect on company training, and this effect mainly arises from low- and middle- income country imports. These findings seem to validate some of the concerns about “ exporting good jobs ” to low- or middle-income countries. On the other hand, I do not find a significant difference between the negative effect of imports in high- and low-tech industries. Finally, I find that final goods imports have a more negative effect on training than imported intermediate goods. My results have implications for the literature. For example, some studies have found evidence of improving labor productivity within industry in face of import competitions. My findings suggest that this productivity improvement is not from increased training, so it may come from the exit and entry of firms within industries, a decrease in the employment level, or both. Identifying the exact channel is crucial as each has different implications for workers, and hence is an important venue for future study. I find that while the effect of non-high income country imports have a significantly negative effect on training, the effect of high-income imports is insignificantly positive. I find that while imported final goods have a significant negative effect on training, imported intermediate goods only have an insignificant effect. Theoretical predictions Consider two channels—the “competition effect” and “skill upgrading effect”—through which imports may affect training. “Competition effect” of imports on training: I develop a theoretical model and come up with two testable hypotheses. H1: Imports from middle or low income countries have a more negative effect on training, while imports from high income countries have a less negative (or even positive) effect. H2: The effect of imports on company training in low-tech industries will be more severely negative while their effect may be less negative (or even positive) in high-tech industries. Rationale: The U.S. firm will conduct more training if training allows the firm to defeat foreign competitors through much better quality. However, if the foreigners have very low costs or if quality improvement is hard (e.g. in a low-tech industry), then the U.S. firm will decrease training because it cannot compete with foreigners even if it train its workers. “Skill upgrading effect” of imports on training: Motivated by the literature on outsourcing, I make the following testable hypothesis: H3: Relative to imported final goods, intermediate goods imports will have a less negative effect on training. Rationale: It is often argued that outsourcing (which can be thought of as importing intermediate goods) opportunity enables a U.S. firm to focus on high-end jobs that require more training. This benefit does not exist for final goods imports. The competition effect suggests that the effect of imports on training depends on industry’s and foreign competitor’s characteristics. The skill upgrading effect stresses the distinction between intermediate and final goods imports. Hence, a priori the direction of the effect is ambiguous.