The Political Consequences of Trade & Technological Change in the UK and Germany

• In Event: Buying Influence: Political Economy of Lobbying and Campaign Contributions

Abstract

How has trade openness affected workers’ labor market standing and political views as compared to the impact of automation and digitalization? How similar are the effects in terms of concentration and magnitude? More broadly, to what extent do insights regarding one source of labor market upheaval apply also to the other sources?

A great deal of research in recent years has analyzed the way the dramatic change in labor markets caused by globalization and technological change affected workers’ economic standing and political leanings. The bulk of this work has focused on the impact of trade liberalization and increased exposure to Chinese imports (Autor et al., 2016; Jensen, Quinn, and Weymouth, 2017; Margalit, 2011; Dippel et al., 2018). But more recently, a burgeoning literature has begun assessing the impact of a different source of labor market transformation, namely automation and digitalization. This body of work explores both the impacts on jobs and earnings (e.g., Acemoglu and Autor, 2011; Frey and Osborne, 2017; Furman and Seamans, 2018) as well as on their political leanings (Anelli, Colantone, and Stanig, 2019; Kurer and Gallego, 2019). Notably, the articles cited above have all focused on only one of these forces – either the effects of economic openness or of automation – but not both. Thus, findings regarding the impact of these two phenomena are difficult to contextualize and compare in a single framework. Our study seeks to address this limitation by utilizing large scale and very detailed data from the UK and Germany that allows us to estimate and compare the effect of workers’ exposure to both trade and technological change (automation/digitalization), on their economic standing and political views.

In contrast to import competition, which in advanced economies tends to hit primarily the lowest skilled workers, the adverse effects of automation are often argued to be hitting also jobs higher up the skill and wage distribution. Specifically, some contend that technological progress is leading to a “hollowing out” of jobs in the middle of the distribution, which contributes to a polarization of the employment structure (Autor, Katz, and Kearney, 2008; Goos and Manning, 2007). Since the distributional consequences of automation and digitalization are very different from those observed for globalization, they should not necessarily have the same political repercussions. Perhaps most notably, the effects of automation also negatively affect a range of white-collar routine jobs, which have faced much less pressure from international trade and offshoring (Peugny 2019).

Our study focuses on two countries, Germany and the UK. Both represent large and globalized markets, yet they differ in the scope and generosity of their social policies, particularly in the domain of welfare support and the protection of jobs. Moreover, Germany has a relatively large manufacturing employment with high robot-use intensity, and is among the largest exporters worldwide. In contrast, the UK economy is more service sector oriented, with a dominating financial sector.

For the empirical analysis, we employ survey data from German’s Socio-Economic Panel (SOEP) and United Kingdom’s combined Understanding Society/BHS covering the period 1993-2015. Following previous studies, we utilize IFR robot usage data, investments in information and communication technologies from the EU KLEMS database, and commodity trade data from UN’s Comtrade. We combine these data sources to conduct a comprehensive analysis of how trade, automation and digitalization shape political attitudes, party affiliation and economic attitudes. Since the impact of these developments is expected to vary by qualification and profession, we explore heterogeneity along job types, educational background and socio-economic characteristics.

Preliminary analysis confirms the polarizing effects that structural changes exert on the labor market. While highly educated individuals generally benefit from both automation and trade exposure, workers in some professions suffer from a higher risk of unemployment and income losses. The negative effects for the lower educated are more pronounced in the UK. With respect to political outcomes, our initial analysis reveals that support for the main parties is negatively associated with import exposure for people without university education in the UK. For Germany, we find generally no association between structural transformations and political outcomes.

In the conference paper, we will present the findings of this analysis in full.

Authors

• Achim Ahrens

• Dominik Hangartner, London School of Economics

• Yotam Margalit, Tel Aviv University