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Trade-Induced Structural Change and the Skill Premium

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  • Javier Cravino
  • Sebastian Sotelo

Abstract

We study how international trade affects manufacturing employment and the relative wage of unskilled workers when goods and services are traded with different intensities. Manufacturing trade reduces manufacturing prices worldwide, which reduces manufacturing employment if manufactures and services are complements. International trade also raises real income, which reduces manufacturing employment if services are more income elastic than manufactures. Manufacturing production is unskilled-labor-intensive, so that these changes increase the skill premium. We incorporate these mechanisms in a quantitative trade model and show that reductions in trade costs had a negative impact on manufacturing employment and the relative wage of unskilled workers.

Suggested Citation

  • Javier Cravino & Sebastian Sotelo, 2019. "Trade-Induced Structural Change and the Skill Premium," American Economic Journal: Macroeconomics, American Economic Association, vol. 11(3), pages 289-326, July.
  • Handle: RePEc:aea:aejmac:v:11:y:2019:i:3:p:289-326
    Note: DOI: 10.1257/mac.20170434
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    References listed on IDEAS

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    Cited by:

    1. Logan T. Lewis & Ryan Monarch & Michael Sposi & Jing Zhang, 2018. "Structural Change and Global Trade," International Finance Discussion Papers 1225, Board of Governors of the Federal Reserve System (U.S.).
    2. Ricardo Reyes-Heroles & Sharon Traiberman & Eva Van Leemput, 2020. "Emerging Markets and the New Geography of Trade: The Effects of Rising Trade Barriers," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 68(3), pages 456-508, September.
    3. Bonadio, Barthélémy & Huo, Zhen & Levchenko, Andrei A. & Pandalai-Nayar, Nitya, 2021. "Global supply chains in the pandemic," Journal of International Economics, Elsevier, vol. 133(C).
    4. Yang, Han, 2019. "Dynamic Trade, Education and Intergenerational Inequality," MPRA Paper 96054, University Library of Munich, Germany.
    5. Sposi, Michael, 2019. "Evolving comparative advantage, sectoral linkages, and structural change," Journal of Monetary Economics, Elsevier, vol. 103(C), pages 75-87.
    6. Cravino, Javier & Levchenko, Andrei A. & Rojas, Marco, 2019. "Population aging and structural transformation," CEPR Discussion Papers 14026, C.E.P.R. Discussion Papers.
    7. Winkler, Erwin, 2020. "Diverging paths: Labor reallocation, sorting, and wage inequality," VfS Annual Conference 2020 (Virtual Conference): Gender Economics 224535, Verein für Socialpolitik / German Economic Association.
    8. Justin Caron & Thibault Fally & James Markusen, 2021. "Per capita income and the demand for skills," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 12, pages 251-268, World Scientific Publishing Co. Pte. Ltd..
    9. Antràs, Pol & de Gortari, Alonso & Itskhoki, Oleg, 2017. "Globalization, inequality and welfare," Journal of International Economics, Elsevier, vol. 108(C), pages 387-412.
    10. Khan, Muhammad Aamir, 2020. "Cross sectoral linkages to explain structural transformation in Nepal," Structural Change and Economic Dynamics, Elsevier, vol. 52(C), pages 221-235.
    11. Lee, Eunhee, 2020. "Trade, inequality, and the endogenous sorting ofheterogeneous workers," Journal of International Economics, Elsevier, vol. 125(C).
    12. Rodrigo Ad'o & Costas Arkolakis & Federico Esp'sito, 2019. "Spatial Linkages, Global Shocks, and Local Labor Markets: Theory and Evidence," Cowles Foundation Discussion Papers 2163, Cowles Foundation for Research in Economics, Yale University.
    13. Ryan Monarch & Jing Zhang & Logan Lewis, 2017. "Structural Change and Slowdown of International Trade," 2017 Meeting Papers 1542, Society for Economic Dynamics.
    14. Ricardo Reyes-Heroles & Sharon Traiberman & Eva Van Leemput, 0. "Emerging Markets and the New Geography of Trade: The Effects of Rising Trade Barriers," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 0, pages 1-53.
    15. Vanessa ALVIAREZ & CHEN Cheng & Nitya PANDALAI-NAYAR & Liliana VARELA & YI Kei-Mu & ZHANG Hongyong, 2021. "Multinationals and Structural Transformation," Discussion papers 21100, Research Institute of Economy, Trade and Industry (RIETI).
    16. Rodrigo Adão & Costas Arkolakis & Federico Esposito, 2019. "General Equilibrium Effects in Space: Theory and Measurement," NBER Working Papers 25544, National Bureau of Economic Research, Inc.
    17. Lidia Smitkova, 2018. "Does Openness Matter for Structural Change?," 2018 Meeting Papers 257, Society for Economic Dynamics.
    18. Myeongwan Kim, 2020. "The Price Effect of Trade: Evidence of the China Shock and Canadian Consumer Prices," CSLS Research Reports 2020-02, Centre for the Study of Living Standards.
    19. Ricardo Reyes-Heroles, 2018. "Globalization and Structural Change in the United States: A Quantitative Assessment," 2018 Meeting Papers 1027, Society for Economic Dynamics.
    20. Sheng, Yu & Zhao, Yuhan & Zhang, Qian & Dong, Wanlu & Huang, Jikun, 2022. "Boosting rural labor off-farm employment through urban expansion in China," World Development, Elsevier, vol. 151(C).
    21. Yang, Han, 2020. "Dynamic Trade, Education and Intergenerational Inequality," MPRA Paper 99976, University Library of Munich, Germany.
    22. Mariarosaria Comunale & Giulia Felice, 2019. "An empirical investigation of the relationship between trade and structural change," Bank of Lithuania Working Paper Series 62, Bank of Lithuania.

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    More about this item

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General

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