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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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    8. Kiminori Matsuyama, 2009. "Structural Change in an Interdependent World: A Global View of Manufacturing Decline," Journal of the European Economic Association, MIT Press, vol. 7(2-3), pages 478-486, 04-05.
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    Citations

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    Cited by:

    1. Sposi, Michael, 2019. "Evolving comparative advantage, sectoral linkages, and structural change," Journal of Monetary Economics, Elsevier, vol. 103(C), pages 75-87.
    2. 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.
    3. 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.
    4. Antràs, Pol & de Gortari, Alonso & Itskhoki, Oleg, 2017. "Globalization, inequality and welfare," Journal of International Economics, Elsevier, vol. 108(C), pages 387-412.
    5. Yang, Han, 2019. "Dynamic Trade, Education and Intergenerational Inequality," MPRA Paper 96054, University Library of Munich, Germany.
    6. Ricardo Reyes-Heroles, 2018. "Globalization and Structural Change in the United States: A Quantitative Assessment," 2018 Meeting Papers 1027, Society for Economic Dynamics.
    7. Caron, Justin & Fally, Thibault & Markusen, James, 2020. "Per capita income and the demand for skills," Journal of International Economics, Elsevier, vol. 123(C).
    8. 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.
    9. 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.
    10. Ryan Monarch & Jing Zhang & Logan Lewis, 2017. "Structural Change and Slowdown of International Trade," 2017 Meeting Papers 1542, Society for Economic Dynamics.
    11. 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.).
    12. Lidia Smitkova, 2018. "Does Openness Matter for Structural Change?," 2018 Meeting Papers 257, Society for Economic Dynamics.
    13. Yang, Han, 2020. "Dynamic Trade, Education and Intergenerational Inequality," MPRA Paper 99976, University Library of Munich, Germany.
    14. 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.
    15. Cravino, Javier & Levchenko, Andrei A. & Rojas, Marco, 2019. "Population aging and structural transformation," CEPR Discussion Papers 14026, C.E.P.R. Discussion Papers.
    16. 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.
    17. Rodrigo Adão & Costas Arkolakis & Federico Espósito, 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.
    18. 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.
    19. Lee, Eunhee, 2020. "Trade, inequality, and the endogenous sorting ofheterogeneous workers," Journal of International Economics, Elsevier, vol. 125(C).

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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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