Trade Liberalization, Import Penetration and Unionization: The U.S. Experience

In the aftermath of World War II there has been a worldwide trend for countries to pursue policies to enhance free trade in order to improve their economic wellbeing. Nevertheless the benefits are associated with free trade and many generate unwanted consequences to segments of a nation’s populace. With this thought in mind, we investigate the impact of import penetration originating from low-wage countries on the unionization rates in U.S. We find that import penetration originating from low-wage countries decreases unionization rates, with a 1% increase in import penetration reducing unionization rates by slightly less than 2% within three years after controlling for several factors that may affect unionization rates. If only imports from China and India (both low-wage countries) are considered, the reduction almost doubles. Our findings are consistent with the argument that firms are reluctant to collaborate and contract with unions that ask for sticky labor costs and multiyear contracts because these provisions often result in declining profit margins.