Import exposure and human capital adjustment: Evidence from the U.S.

We exploit variation in exposure to Chinese import competition to identify the effect of trade-induced changes in labor market conditions on human capital accumulation in the U.S. from 1990 to 2007. We document large increases in U.S. high school graduation rates in the labor markets most affected by import competition. After controlling for established predictors of high school completion, demographic shifts, and coincident labor market changes unrelated to trade with China, we estimate that a movement from the 25th to the 75th percentile in Chinese import exposure led to an average increase in the graduation rate of 3.64 percentage points. Consistent with an environment in which students weigh increases in future earnings potential from further education against current labor market opportunities foregone, we find that growth in Chinese imports led to declines in wages for all educational groups, and reductions in employment for individuals without a high school degree both in absolute terms and relative to their more educated peers.