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Trade, Education, and the Shrinking Middle Class

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  • Emily Blanchard
  • Gerald Willmann

Abstract

We develop a new model of trade in which educational institutions drive comparative advantage and determine the distribution of human capital within and across countries. Our framework exploits a multiplicity of sectors and the continuous support of human capital choices to demonstrate that freer trade can induce crowding out of the middle occupations towards the skill acquisition extremes in one country, and simultaneous expansion of middle-income industries in another. Individual gains from trade may be non-monotonic in workers’ ability, and middle ability agents can lose the most from trade liberalization. Comparing trade and education policy, we find that targeted education subsidies are more effective than tariffs as a means to preserve “middle class” jobs, while uniform educational subsidies have no effect.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4141.

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Date of creation: 2013
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Handle: RePEc:ces:ceswps:_4141

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Keywords: trade and education policy; skill acquisition; education; income distribution;

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References

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  1. Elhanan Helpman & Oleg Itshoki & Stephen Redding, 2009. "Inequality and unemployment in a global economy," LSE Research Online Documents on Economics 25501, London School of Economics and Political Science, LSE Library.
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  14. Maarten Goos & Alan Manning, 2003. "Lousy and lovely jobs: the rising polarization of work in Britain," LSE Research Online Documents on Economics 20002, London School of Economics and Political Science, LSE Library.
  15. Franziska Ohnsorge & Daniel Trefler, 2007. "Sorting It Out: International Trade with Heterogeneous Workers," Journal of Political Economy, University of Chicago Press, vol. 115(5), pages 868-892, October.
  16. Milgrom, Paul & Roberts, John, 1990. "The Economics of Modern Manufacturing: Technology, Strategy, and Organization," American Economic Review, American Economic Association, vol. 80(3), pages 511-28, June.
  17. Jae-won Jung & Jean Mercenier, 2008. "A Simple Model of Offshore Outsourcing,Technology Upgrading and Welfare," THEMA Working Papers 2008-21, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
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