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All you need is love? Trade shocks, inequality, and risk sharing between partners

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  • Huber, Katrin
  • Winkler, Erwin

Abstract

A large literature suggests that growing international trade is among the drivers of rising labor earnings inequality within countries. We contribute to this literature by studying the distributional effects of Germany’s trade integration with China and Eastern Europe. We provide evidence that the trade shock explains 5–18% of the rise in earnings inequality between individual workers. However, when we take risk sharing between partners into account, we find that the inequality-increasing effect of the trade shock is up to 42% lower. Our results therefore suggest that a pure worker-level perspective which ignores risk sharing might give an incomplete picture of the distributional effects of international trade.

Suggested Citation

  • Huber, Katrin & Winkler, Erwin, 2019. "All you need is love? Trade shocks, inequality, and risk sharing between partners," European Economic Review, Elsevier, vol. 111(C), pages 305-335.
  • Handle: RePEc:eee:eecrev:v:111:y:2019:i:c:p:305-335
    DOI: 10.1016/j.euroecorev.2018.10.003
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    Cited by:

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    3. Peter Levell & Matthias Parey & Aitor Irastorza-Fadrique, 2023. "Household responses to trade shocks," IFS Working Papers W23/13, Institute for Fiscal Studies.
    4. Osea Giuntella & Lorenzo Rotunno & Luca Stella, 2022. "Globalization, Fertility and Marital Behavior in a Lowest-Low Fertility Setting," CESifo Working Paper Series 9755, CESifo.
    5. Hannah Illing & Johannes Schmieder & Simon Trenkle, "undated". "The Gender Gap in Earnings Losses After Job Displacement," CRC TR 224 Discussion Paper Series crctr224_2022_381, University of Bonn and University of Mannheim, Germany.
    6. Ponce, Pablo & Yunga, Fernando & Larrea-Silva, Jhohana & Aguirre, Nikolay, 2023. "Spatial determinants of income inequality at the global level: The role of natural resources," Resources Policy, Elsevier, vol. 84(C).
    7. Eggenberger, Christian & Janssen, Simon & Backes-Gellner, Uschi, 2022. "The value of specific skills under shock: High risks and high returns," Labour Economics, Elsevier, vol. 78(C).
    8. Dai, Mi & Huang, Wei & Zhang, Yifan, 2021. "How do households adjust to tariff liberalization? Evidence from China's WTO accession," Journal of Development Economics, Elsevier, vol. 150(C).
    9. Shouxin Bai & Shicheng Zhou & Yuyao Sheng & Xingwei Wang, 2022. "Does Lockdown Reduce Employment in Major Developing Countries? An Assessment Based on Multiregional Input–Output Model and Scenario Analysis," Sustainability, MDPI, vol. 14(12), pages 1-19, June.
    10. Borrs, Linda & Knauth, Florian, 2021. "Trade, technology, and the channels of wage inequality," European Economic Review, Elsevier, vol. 131(C).

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    More about this item

    Keywords

    International trade; Earnings inequality; Risk sharing; Households;
    All these keywords.

    JEL classification:

    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J12 - Labor and Demographic Economics - - Demographic Economics - - - Marriage; Marital Dissolution; Family Structure
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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