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Trade policy and wage inequality: A structural analysis with occupational and sectoral mobility

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  • Artuç, Erhan
  • McLaren, John

Abstract

A number of authors have argued that a worker's occupation of employment is at least as important as the worker's industry of employment in determining whether the worker will be hurt or helped by international trade. We investigate the role of occupational mobility on the effects of trade shocks on wage inequality in a dynamic, structural econometric model of worker adjustment. Each worker in our specification can switch either industry, occupation, or both, paying a time-varying cost to do so in a rational-expectations optimizing environment. We also specify a novel model of offshoring based on task-by-task comparative advantage that collapses to a very simple form for simulation. We find that the costs of switching industry and occupation are both high, and of similar magnitude. In simulations we find that a worker's industry of employment is much more important than either the worker's occupation or skill class in determining whether or not she is harmed by a trade shock, but occupation is crucial in determining who is harmed by an offshoring shock.

Suggested Citation

  • Artuç, Erhan & McLaren, John, 2015. "Trade policy and wage inequality: A structural analysis with occupational and sectoral mobility," Journal of International Economics, Elsevier, vol. 97(2), pages 278-294.
  • Handle: RePEc:eee:inecon:v:97:y:2015:i:2:p:278-294 DOI: 10.1016/j.jinteco.2015.06.001
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    Cited by:

    1. Caliendo, Lorenzo & Opromolla, Luca David & Parro, Fernando & Sforza, Alessandro, 2017. "Goods and Factor Market Integration: A Quantitative Assessment of the EU Enlargement," CEPR Discussion Papers 12213, C.E.P.R. Discussion Papers.
    2. David H. Autor & David Dorn & Gordon H. Hanson, 2016. "The China Shock: Learning from Labor-Market Adjustment to Large Changes in Trade," Annual Review of Economics, Annual Reviews, vol. 8(1), pages 205-240, October.
    3. Matthias Flückiger & Markus Ludwig, 2015. "Chinese export competition, declining exports and adjustments at the industry and regional level in Europe," Canadian Journal of Economics, Canadian Economics Association, vol. 48(3), pages 1120-1151, August.
    4. Jain, Sanjay & Majumdar, Sumon, 2016. "State capacity, redistributive compensation and the political economy of economic policy reform," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 462-473.
    5. repec:jau:wpaper:2013/18 is not listed on IDEAS
    6. Arias, Javier & Artuc, Erhan & Lederman, Daniel & Rojas, Diego, 2013. "Trade, informal employment and labor adjustment costs," Policy Research Working Paper Series 6614, The World Bank.
    7. Yuan Zi, 2016. "Trade Liberalization and the Great Labor Reallocation," IHEID Working Papers 18-2016, Economics Section, The Graduate Institute of International Studies.
    8. repec:eee:inecon:v:108:y:2017:i:c:p:20-36 is not listed on IDEAS
    9. Artuc, Erhan, 2013. "PPML estimation of dynamic discrete choice models with aggregate shocks," Policy Research Working Paper Series 6480, The World Bank.
    10. Irlacher, Michael & Baumgarten, Daniel & Koch, Michael, 2017. "Short- versus long-run effects of offshoring when sectors are heterogeneous," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168272, Verein für Socialpolitik / German Economic Association.

    More about this item

    Keywords

    Sectoral mobility; Occupational mobility; Trade policy;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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