The Impact of NAFTA on U.S. Local Labor Market Employment

Abstract

This paper studies the impact of the North American Free Trade Agreement on U.S. local employment outcomes based on cross-regional variation in exposure to U.S. and Mexico’s tariff liberalization. I find that lower U.S. tariffs led to a relative decline in the share of the working-age population employed in manufacturing (especially among low-skilled workers) in more exposed regions, and increases in unemployment and in the share of the population employed in certain low-pay nonmanufacturing industries. Employment losses due to U.S. tariff liberalization were much larger among female and nonwhite workers. U.S. tariff cuts also induced changes in the task composition of employment, leading to a decline in employment in production-related routine occupations and an increase in abstract occupations. The contraction in manufacturing and total employment as a result of U.S. tariff liberalization was concentrated in parts of the South and Midwest with relatively lower human capital. While Mexico’s tariff cuts did not have a statistically significant impact on manufacturing employment for the population as a whole, they did increase manufacturing employment among individuals with college education.