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    Labor Market Shocks and the Demand for Trade Protection: Evidence from Online Surveys
    28 May 2019Working Paper Summaries

    Labor Market Shocks and the Demand for Trade Protection: Evidence from Online Surveys

    by Rafael Di Tella and Dani Rodrik
    This paper provides evidence on the role played by different kinds of labor-market shocks in shaping individuals’ policy preferences. Specifically, it studies how people’s opinions about trade protectionism and compensatory financial transfers change when presented with six different types of shocks, all of which have the same effect on local labor markets.
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    Author Abstract

    We study preferences for government action in response to layoffs resulting from different types of labor-market shocks. We consider the following shocks: technological change, a demand shift, bad management, and three kinds of international outsourcing. Respondents are given a choice among no government action, compensatory transfers, and trade protection. In response to these shocks, support for government intervention generally rises sharply and is heavily biased towards trade protection. Demand for import protection increases significantly in all cases, except for the “bad management” shock. Trade shocks generate more demand for protectionism, and, among trade shocks, outsourcing to a developing country elicits greater demand for protectionism than outsourcing to a developed country. The “bad management” shock is the only scenario that induces a desired increase in compensatory transfers. Effects appear to be heterogeneous across subgroups with different political preferences and education. Trump supporters are more protectionist than Clinton supporters, but preferences seem easy to manipulate: Clinton supporters primed with trade shocks are as protectionist as baseline Trump voters. Highlighting labor abuses in the exporting country increases the demand for trade protection by Clinton supporters but not Trump supporters.

    Paper Information

    • Full Working Paper Text
    • Working Paper Publication Date: March 2019
    • HBS Working Paper Number: NBER Working Paper Series, No. 25705
    • Faculty Unit(s): Business, Government and International Economy
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    Rafael M. Di Tella
    Rafael M. Di Tella
    William Ziegler Professor of Business Administration
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