Harvard Kennedy School Professor Gordon Hanson and his two long-time research partners have spent the past decade unraveling the dire impact of China’s manufacturing boom on American factory workers and their communities. Their latest research shows that what they call the “China shock” continued to ravage U.S. factory towns for many years after the boom in Chinese manufacturing had plateaued in 2010.
After working for years to understand the causes of this economic distress, Hanson now wants to focus on the search for solutions. His next initiative is to develop economic policy options that could do a better job responding—town by town—to the specific problems that kept U.S. workers and their communities in crisis as manufacturing jobs disappeared, especially in sections of the Midwest and Southeast. And he is scanning for future economic shocks that better policy measures could ease.
Hanson, the Peter Wertheim Professor in Urban Policy, has carried out his groundbreaking research with economists David Autor, a professor at the Massachusetts Institute of Technology (and a visiting professor at HKS this year), and David Dorn, a professor at the University of Zurich. Their work is cited frequently on discussions of the effects of Chinese import competition on U.S. workers.
Their 2013 paper on “The China Syndrome” identified just how severe the effects had been for workers in certain regions—but not everywhere—since the Chinese import boom took hold in the 1990s. The researchers were able to tease out why some workers and towns managed to reinvent themselves while workers in other regions failed to find new jobs at all. These regional differences remain a central theme of the ongoing work—and of the resulting policy ideas.
In a recent working paper, the three economists reported on the persistence of the China shock. They found that the disruption the Chinese manufacturing surge caused was not just deep but also long-lasting in certain areas. Indeed, the negative effects were sustained in some U.S. factory towns for nearly a decade after the Chinese manufacturing boom leveled off in 2010.
That paper, accepted for publication this spring in the prestigious Brookings Papers on Economic Activity, measures the lingering effects from factory closures dating from the shock years. The researchers document that some U.S. workers who had been laid off stayed unemployed. Especially in areas where people were less educated, older, and less able to move elsewhere, incomes fell and social ills multiplied.
“Labor markets more exposed to important competition from China experienced more plant closures; larger declines in manufacturing employment, employment-population ratios, earnings for low-wage workers, housing prices, and tax revenues; and larger increases in childhood and adult poverty, single parenthood, and mortality related to drug and alcohol abuse, as well as greater uptake of government transfers,” the researchers wrote.
Looking at data through 2019, the authors “find that negative effects on manufacturing employment continue to build well beyond the culmination of the trade shock itself.”
They conclude: “The fact that the losses from trade are regionally concentrated and long-lasting suggests that existing policies failed to insulate workers from the disruptive impacts of globalization.”
Those policies have tended to focus on national assistance programs rather than address the specific needs of each distressed community. The sweeping national policies that have been commonly used are too blunt an instrument to respond to local conditions, Hanson said in an interview. Instead, policy approaches need to counter conditions “tantamount to a severe local recession.”
Hanson has ambitious plans to take this analytical work to a level that will make it accessible and useful for policy planners and practitioners. He is partnering with economist Dani Rodrik, the Ford Foundation Professor of International Political Economy, to build a staff and a team of graduate students who will go into the field and explore what policy strategies work and what don’t.
Hanson’s team also will look at potential future shocks. One is already upon us, he notes: the drastic changes resulting from shifting energy patterns as fossil fuel use declines. One example is the collapse of the coal industry, with the loss of thousands of jobs.
Hanson is determined to share lessons from his work beyond peer-reviewed scholarly papers and textbooks. He and other faculty in the Malcolm Wiener Center for Social Policy are working with HKS students to flesh out the web-based Socia Policy Data Lab, which will make the data and ideas available to local officials almost in real time.
“As we’re uncovering insights,” Hanson says, “we want to make those available via this data visualization platform that will serve as a resource for people to learn, compare what’s going on in their place versus other places, to look for successes and failures, and to do some self-diagnosis.”
Image by AP Photo/Matt Rourke