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

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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; it is also the only case without a significant increase in desired trade protection. Effects appear to be heterogeneous across subgroups with different political preferences and education. In particular, Trump supporters are more protectionist than Clinton supporters. But preferences seem malleable and easy to manipulate: Clinton supporters primed with trade shocks are as protectionist as baseline Trump voters.

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Last updated on 01/16/2019