International Trade and Labor Income Risk in the United States
AbstractThis 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 InfoPaper provided by Society for Economic Dynamics in its series 2009 Meeting Papers with number 471.
Date of creation: 2009
Date of revision:
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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Other versions of this item:
- Pravin Krishna & Mine Zeynep Senses, 2009. "International Trade and Labor Income Risk in the United States," NBER Working Papers 14992, National Bureau of Economic Research, Inc.
- F1 - International Economics - - Trade
- F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
- F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
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