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

Illenin Kondo

No 1302, 2013 Meeting Papers from Society for Economic Dynamics

Abstract: In contrast to standard trade theory, I document that locations facing more foreign competition in the U.S. have: higher job destruction rates, lower job creation rates, and thereby experience higher unemployment rates. To account for these facts, I introduce a simple trade model with unemployment and segmented local labor markets. Import competition has a correlated effect on job destruction and job creation because the most vulnerable also have lower productivity. After an unexpected trade liberalization with limited labor mobility, employment sharply falls in the worse hit locations even though aggregate welfare gains are positive.

Date: 2013
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Working Paper: Trade Reforms, Foreign Competition, and Labor Market Adjustments in the U.S (2013)
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