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Labor Market Effects of Global Supply Chain Disruptions

Author

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  • Ulate, Mauricio
  • Vasquez, Jose P.
  • Zarate, Roman D

Abstract

We examine the labor market consequences of recent global supply chain disruptions induced by COVID-19. Specifically, we consider a temporary increase in international trade costs similar to the one observed during the pandemic and analyze its effects on labor market outcomes using a quantitative trade model with downward nominal wage rigidities. Even omitting any health-related impacts of the pandemic, the increase in trade costs leads to a temporary but prolonged decline in U.S. labor force participation. However, there is a temporary increase in manufacturing employment as the United States is a net importer of manufactured goods, which become costlier to obtain from abroad. By contrast, service and agricultural employment experience temporary declines. Nominal frictions lead to temporary unemployment when the shock dissipates, but this depends on the degree of monetary accommodation. Overall, the shock results in a 0.14% welfare loss for the United States. The impact on labor force participation and welfare across countries varies depending on the initial degree of openness and sectoral deficits.

Suggested Citation

  • Ulate, Mauricio & Vasquez, Jose P. & Zarate, Roman D, 2023. "Labor Market Effects of Global Supply Chain Disruptions," CEPR Discussion Papers 17980, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17980
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    Cited by:

    1. is not listed on IDEAS
    2. Andrés Rodríguez-Clare & Mauricio Ulate & Jose P. Vasquez, 2025. "The 2025 Trade War: Dynamic Impacts Across U.S. States and the Global Economy," NBER Working Papers 33792, National Bureau of Economic Research, Inc.
    3. José Pulido, 2023. "Pandemic-induced increases in container freight rates: assessing their domestic effects in a globalised world," BIS Working Papers 1132, Bank for International Settlements.
    4. Di, Junpeng & Li, Wanhe & Zhang, Mingyuan, 2025. "Impact of corporate employment: Minimum wage or social insurance policy? Evidence from China," Journal of Asian Economics, Elsevier, vol. 100(C).

    More about this item

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • F66 - International Economics - - Economic Impacts of Globalization - - - Labor

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