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Trade Reforms, Foreign Competition, and Labor Market Adjustments in the U.S

Illenin Kondo

No 1095, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Using data on trade-induced displacements, this paper documents that locations facing more foreign competition in the U.S. have: higher job destruction rates, lower job creation rates, and thereby lower employment rates. In contrast to standard trade theory, a model with variable markups and heterogeneous segmented labor markets is consistent with these facts. Foreign competition has a correlated effect on job destruction and job creation precisely because the most vulnerable locations also have lower productivity. Following an unexpected trade liberalization with limited mobility, employment sharply falls in the worse hit locations while welfare and employment increase in the aggregate.

Keywords: Foreign competition; nonemployment; job flows; spatial heterogeneity (search for similar items in EconPapers)
JEL-codes: F16 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-geo, nep-int and nep-lab
Date: 2013-12-01
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Working Paper: Trade Reforms, Foreign Competition, and Labor Market Adjustments in the U.S (2013)
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