Hit by the Silk Road: how wage coordination in Europe mitigates the China shock*

Abstract

Coordination in collective wage setting can constrain potential monopoly gains to unions in non-traded-goods industries. Countries with national wage coordination can thus stabilize overall employment against fluctuations and shocks in the world economy. We test this theory by exploring within-country variation in exposure to competition from China in 13 European countries. Our causal estimates demonstrate that in countries with uncoordinated wage setting, regions with higher import exposure from China experienced a marked fall in employment, while countries with wage-coordination experienced no such employment effects. We test our main mechanism against other explanations, and show that our findings are robust to alternative measures of wage coordination, industry classifications, and trade exposure.

The value of specific skills under shock: High risks and high returns

“…Given the high industry-level variation in the timing and intensity of the Eastern Europe/China trade shock (see Section 5), we follow Autor et al (2014) in arguing that our story is more consistent with import shock exogeneity rather than employment share exogeneity. Moreover, Barth et al (2020) show that estimates of the e↵ect of trade on regional employment in Europe are identified primarily by the import shocks. To check for industry-level orthogonality, Borusyak et al (2022) recommend regressing current shocks on past outcomes.…”