Most couples work in different industries – and so one partner''s gains from globalisation often offset another''s loss
Being married or cohabiting has acted as a kind of insurance against the negative effects of globalisation on workers in Germany, according to a study by Katrin Huber, to be presented at the Royal Economic Society''s annual conference at the University of Bristol in April 2017.
The research finds that globalisation''s negative impacts have on average been softened for German workers with a partner. By analysing household incomes between 1993 and 2008, it finds that the effects on one partner of losing a job, for example, were often cushioned by the benefits from globalisation experienced by the other.
The research finds that when one partner experiences income losses due to import competition, about 15% of the loss via positive income effects from globalisation is cushioned by the other partner. This occurred because seven out of 10 couples worked in different industries, and were therefore likely to be affected differently by the expansion in trade with China and Eastern Europe.
The author concludes: ''My findings suggest that policies should be targeted especially at negatively affected single-headed households, for example single mothers, who have to carry the whole burden of negative income shocks themselves.''
Even before Donald Trump picked up the topic in his presidential campaign, globalisation was often blamed for rising unemployment and income inequality in industrialised countries. While it is well known that globalisation in the form of growing international trade produces both ''winners'' and ''losers'', there is still a hot debate about its exact distributional consequences.
We analyse Germany''s growing exports to and imports from China and East European countries and provide new insights to this discussion. Our results suggest that married and unmarried couples were better able to cope with the negative effects of this trade shock than singles.
Between 1993 and 2008, German exports to and imports from China and Eastern Europe increased by 700-800% and the respective shares in total trade increased from 5% to 25%. We find that German workers on average gained €80 per year from this trade shock.
The costs and benefits, however, were strongly unevenly distributed across the population. Whereas earnings of high-skilled workers in export-oriented industries (for example, manufacturing of motor vehicles) increased by up to €1,000 in some years, especially low-skilled workers in import-competing industries (for example, manufacturing of office machinery) increasingly became unemployed.
We find that couples where one partner experiences income losses due to import competition can cushion on average about 15% of the loss via positive income effects on the other partner. This so-called risk-sharing effect occurs when partners share total household income and are employed in different industries.
Suppose that the husband works in a negatively affected industry, gets laid off, and experiences one month of unemployment. If his wife, who is working in an export-oriented industry, gets a wage increase or a bonus at the end of the year, she can cushion part of the husband''s loss in income.
Even if the wife is working but not affected at all by the trade shock, the burden of lower earnings due to unemployment can be distributed across both partners. Singles, in contrast, cannot benefit from such an insurance effect and have to rely on other mechanisms, such as unemployment insurance. In addition, our results suggest that risk-sharing reduced the impact on earnings inequality by 40%.
The risk-sharing effect on couples is large since in 70% of all couples, partners work in different industries. But not everybody benefits equally from this effect. Our results show that especially females as well as individuals with less than secondary education can take advantage of risk-sharing.
These findings suggest that policies should be targeted especially at negatively affected single-headed households (for example, single mothers) who have to carry the whole burden of negative income shocks themselves.
Since the risk-sharing effect increases with the extent to which partners are willing to pool and share their incomes, another policy implication of our results is that creating further incentives for income pooling and sharing might foster risk-sharing within households and make further trade deals more inclusive. Examples are tax-based mechanisms like German ''Ehegattensplitting'', which provide incentives for joint taxation of both spouses'' incomes, thereby fostering income pooling.
All You Need is Love? Trade Shocks, Inequality, and Risk Sharing within Households – Katrin Huber