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The Effect of Trade on the Demand for Skill - Evidence from the Interstate Highway System

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Author Info
Guy Michaels
Abstract

Since changes in trade openness are typically confounded with other factors, it has been difficult toidentify the labor market consequences of increased international trade. The advent of the UnitedStates Interstate Highway System provides a unique policy experiment, which I use to identify theeffect of reducing trade barriers on the relative demand for skilled labor. The Interstate HighwaySystem was designed to connect major metropolitan areas, to serve national defence and to connectthe United States to Canada and Mexico. As a consequence - though not an objective - many ruralcounties were also connected to the highway system. I find that these counties experienced anincrease in trade-related activities, such as trucking and retail sales, by 7-10 percentage points percapita. Most significantly, by increasing trade the highways raised the relative demand for skilledmanufacturing workers in counties with a high endowment of human capital and reduced it elsewhere,consistent with the predictions of the Heckscher-Ohlin model.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0772.

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Date of creation: Dec 2006
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Handle: RePEc:cep:cepdps:dp0772

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Related research
Keywords: Skill Premium; Trade; Highways;

Find related papers by JEL classification:
F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Michaels, Guy, 2006. "The Long-Term Consequences of Regional Specialization," CEPR Discussion Papers 6028, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  2. Guy Michaels, 2006. "The Long-Term Consequences of Regional Specialization," CEP Discussion Papers dp0766, Centre for Economic Performance, LSE. [Downloadable!]
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