Labor Markets Shown Not Self-Repairing

Three economists writing for The National Bureau for Economic Research have looked at the impact of low-cost Chinese exports on U.S. labor markets. They find it has been both profound and long-lasting. See their abstract:

China’s emergence as a great economic power has induced an epochal shift in patterns of world trade. Simultaneously, it has challenged much of the received empirical wisdom about how labor markets adjust to trade shocks. Alongside the heralded consumer benefits of expanded trade are substantial adjustment costs and distributional consequences. These impacts are most visible in the local labor markets in which the industries exposed to foreign competition are concentrated. Adjustment in local labor markets is remarkably slow, with wages and labor-force participation rates remaining depressed and unemployment rates remaining elevated for at least a full decade after the China trade shock commences. Exposed workers experience greater job churning and reduced lifetime income. At the national level, employment has fallen in U.S. industries more exposed to import competition, as expected, but offsetting employment gains in other industries have yet to materialize. Better understanding when and where trade is costly, and how and why it may be beneficial, are key items on the research agenda for trade and labor economists.

Contravening conventional economic wisdom, "offsetting employment gains in other industries have yet to materialize." Hence the flat-lining blue collar incomes we've experienced in recent decades. Free trade isn't an unmixed blessing after all.