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International Trade and Labor Income Risk in the United States

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  • Mine Zeynep Senses

    (Johns Hopkins University)

  • Pravin Krishna

    (Johns Hopkins University and NBER)

Abstract

This paper studies empirically the links between international trade and labor income risk faced by workers in the United States. We use longitudinal data on workers to estimate time-varying individual income risk at the industry level. We then combine our estimates of persistent labor income risk with measures of exposure to international trade to analyze the relationship between trade and labor income risk. Importantly, by contrasting estimates from various sub-samples of workers, such as those who switched to a different industry (or sector) with those who remained in the same industry throughout the sample, we study the relative importance of the different channels through which international trade affects individual income risk. Finally, we use these estimates to conduct a welfare analysis evaluating the benefits or costs of trade through the income risk channel. We find increased import penetration to have a statistically and economically significant effect on labor income risk in the US. Under standard parameter values for the inter-temporal discount rate and the rate of risk aversion, this increase in risk is (certainty) equivalent to a reduction in lifetime consumption of about five percent.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2009 Meeting Papers with number 471.

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Date of creation: 2009
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Handle: RePEc:red:sed009:471

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  1. Tom Krebs & Pravin Krishna, 2005. "Trade Policy, Income Risk and Welfare," 2005 Meeting Papers 271, Society for Economic Dynamics.
  2. Hartmut Egger & Udo Kreickemeier, 2007. "Firm Heterogeneity and the Labour Market Effects of Trade Liberalisation," CESifo Working Paper Series 2000, CESifo Group Munich.
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Citations

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Cited by:
  1. Christopher Kurz & Mine Z. Senses, 2013. "Importing, exporting and firm-level employment volatility," Finance and Economics Discussion Series 2013-44, Board of Governors of the Federal Reserve System (U.S.).
  2. Jan Hogrefe & Yao Yao, 2012. "Offshoring and Labor Income Risk: An Empirical Investigation," SOEPpapers on Multidisciplinary Panel Data Research 515, DIW Berlin, The German Socio-Economic Panel (SOEP).
  3. Christopher Kurz & Mine Z. Senses, 2013. "Importing, Exporting And Firm-Level Employment Volatility," Working Papers 13-31, Center for Economic Studies, U.S. Census Bureau.
  4. Sly, Nicholas, 2010. "Skill Acquisition, Incentive Contracts and Jobs: Labor Market Adjustment to Trade," MPRA Paper 25004, University Library of Munich, Germany.
  5. Ann Harrison & John McLaren & Margaret S. McMillan, 2010. "Recent Findings on Trade and Inequality," NBER Working Papers 16425, National Bureau of Economic Research, Inc.
  6. Harrison, Ann & McLaren, John & McMillan, Margaret, 2011. "Recent perspectives on trade and inequality," Policy Research Working Paper Series 5754, The World Bank.
  7. Hogrefe, Jan & Yao, Yao, 2012. "Offshoring and labor income risk," ZEW Discussion Papers 12-025, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  8. Robin Burgess & Dave Donaldson, 2012. "Can openness to trade reduce income volatility? Evidence from colonial India's famine era," LSE Research Online Documents on Economics 54255, London School of Economics and Political Science, LSE Library.
  9. Senses, Mine Zeynep, 2010. "The effects of offshoring on the elasticity of labor demand," Journal of International Economics, Elsevier, vol. 81(1), pages 89-98, May.

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