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Labor Markets and Kaleidoscopic Comparative Advantage

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  • Daniel A. Traca

Abstract

Capturing the notion of kaleidoscopic comparative advantage (Bhagwati, 1998), we show that international trade increases the volatility of profitability. In this framework, we address the labor market implications of an increase in openness, when insurance and credit markets are imperfect. With kaleidoscopic comparative advantage, trade raises the likelihood of firm shutdown and worker displacement, which, in equilibrium, affects wage contracts. In a simple model, we analyze the consequences for wage levels, earnings volatility, job instability, and income distribution, of the openness of previously nontraded industries to international trade.

Suggested Citation

  • Daniel A. Traca, 2005. "Labor Markets and Kaleidoscopic Comparative Advantage," Review of International Economics, Wiley Blackwell, vol. 13(3), pages 431-444, August.
    • Handle: RePEc:bla:reviec:v:13:y:2005:i:3:p:431-444
    DOI: 10.1111/j.1467-9396.2005.00515.x
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    1. Marianne Bertrand, 2004. "From the Invisible Handshake to the Invisible Hand? How Import Competition Changes the Employment Relationship," Journal of Labor Economics, University of Chicago Press, vol. 22(4), pages 723-766, October.
    2. Dani Rodrik, 1998. "Has Globalization Gone Too Far?," Challenge, Taylor & Francis Journals, vol. 41(2), pages 81-94, March.
    3. Henry S. Farber, 1997. "The Changing Face of Job Loss in the United States, 1981-1995," Working Papers 761, Princeton University, Department of Economics, Industrial Relations Section..
    4. Daniel A. Traca, 2005. "Trade Exposure, Export Intensity, and Wage Volatility: Theory and Evidence," The Review of Economics and Statistics, MIT Press, vol. 87(2), pages 336-347, May.
    5. Henry S. Farber, 1997. "The Changing Face of Job Loss in the United States, 1981-1995," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1997 Micr), pages 55-142.
    6. Henry S. Farber, 1997. "The Changing Face of Job Loss in the United States, 1981-1995," Working Papers 761, Princeton University, Department of Economics, Industrial Relations Section..
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    Cited by:

    1. Don J. Webber & Michael Horswell, 2009. "Winners and Losers: Spatial variations in labour productivity in England and Wales," Working Papers 0912, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.

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    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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