The Impact of Trade on Labor Market Dynamics

Lorenzo Caliendo, Maximiliano Dvorkin and Fernando Parro

No 21149, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop a dynamic labor search model where production and consumption take place in spatially distinct labor markets with varying exposure to domestic and international trade. The model recognizes the role of labor mobility frictions, goods mobility frictions, geographic factors, and input-output linkages in determining equilibrium allocations. We show how to solve the equilibrium of the model without estimating productivities, reallocation frictions, or trade frictions, which are usually difficult to identify. We use the model to study the dynamic labor market outcomes of aggregate trade shocks. We calibrate the model to 38 countries, 50 U.S. states and 22 sectors and use the rise in China's import competition to quantify the aggregate and disaggregate employment and welfare effects on the U.S. economy. We find that China's import competition growth resulted in 0.6 percentage point reduction in the share of manufacturing employment, approximately 1 million jobs lost, or about 60% of the change in the manufacturing employment share not explained by a secular trend. Overall, China's shock increases U.S. welfare by 6.7% in the long-run and by 0.2% in the short-run with very heterogeneous effects across labor markets.

JEL-codes: E24 F16 J62 R13 R23 (search for similar items in EconPapers)
Date: 2015-05
New Economics Papers: this item is included in nep-dge, nep-geo, nep-lab and nep-mac
Note: ITI
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (85)

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Working Paper: The Impact of Trade on Labor Market Dynamics (2015)
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