The effect of foreign competition in prices and quantities on the employment in import-sensitive U.S. industries

Abstract

This article estimates the effect of foreign competition in prices and for market share on the employment in five import-sensitive U.S. industries. It starts with a model where the dominant domestic firm sets the price to achieve a particular output target. Actual output and labor demand differ from target because of unexpected movements in the fringe foreign supply curve. Estimation reveals that foreign competition in price and quantity is a more important determinant of domestic employment than is foreign competition in price alone. But, trade protection is not an implication of these results because the effect of domestic variables, such as intermediate input costs and fluctuations in demand, are much more important determinants of domestic employment in these industries.