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Trade and Labor Market Dynamics

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  • Lorenzo CALIENDO
  • Maximiliano DVORKIN
  • Fernando PARRO

Abstract

We develop a dynamic trade model where production and consumption take place in spatially distinct labor markets with varying exposure to domestic and international trade. The model recognizes the role of labor mobility frictions, goods mobility frictions, geographic factors, and input-output linkages in determining equilibrium allocations. We show how to solve the equilibrium of the model without estimating productivities, migration frictions, or trade costs, which are usually difficult to identify. We calibrate the model to 38 countries, 50 U.S. states, and 22 sectors, and use the rise in China's import competition to quantify the effects across more than 1,000 U.S. labor markets. We find that China's trade shock resulted in a loss of 800,000 U.S. manufacturing jobs, about 50% of the change in the manufacturing employment share unexplained by a secular trend. We find aggregate welfare gains, but, due to trade and migration frictions, the welfare and employment effects vary across U.S. labor markets. Estimated transition costs to the new long-run equilibrium are also heterogeneous and reflect the importance of accounting for labor dynamics.

Suggested Citation

  • Lorenzo CALIENDO & Maximiliano DVORKIN & Fernando PARRO, 2016. "Trade and Labor Market Dynamics," Discussion papers 16050, Research Institute of Economy, Trade and Industry (RIETI).
  • Handle: RePEc:eti:dpaper:16050
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    References listed on IDEAS

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    Cited by:

    1. Victor Aguirregabiria & Jiaying Gu & Yao Luo, 2018. "Sufficient Statistics for Unobserved Heterogeneity in Structural Dynamic Logit Models," Papers 1805.04048, arXiv.org.
    2. Sposi, Michael J., 2017. "Demographics and the Evolution of Global Imbalances," Globalization and Monetary Policy Institute Working Paper 332, Federal Reserve Bank of Dallas.
    3. repec:oup:ecpoli:v:32:y:2017:i:92:p:651-705. is not listed on IDEAS
    4. Swati Dhingra & Hanwei Huang & Gianmarco Ottaviano & João Paulo Pessoa & Thomas Sampson & John Van Reenen, 2017. "The costs and benefits of leaving the EU: trade effects," Economic Policy, CEPR;CES;MSH, vol. 32(92), pages 651-705.
    5. Ariel Burstein & Gordon Hanson & Lin Tian & Jonathan Vogel, 2017. "Tradability and the Labor-Market Impact of Immigration: Theory and Evidence from the U.S," NBER Working Papers 23330, National Bureau of Economic Research, Inc.
    6. Claudia Macaluso, 2017. "Skill Remoteness and Post-layoff Labor Market Outcomes," 2017 Meeting Papers 569, Society for Economic Dynamics.
    7. Dvorkin, Maximiliano & Shell, Hannah, 2016. "A Regional Look at U.S. International Trade," Review, Federal Reserve Bank of St. Louis, vol. 98(1), pages 17-39.
    8. Lin Tian & Jonathan Vogel & Gordon Hanson & Ariel Burstein, 2017. "Immigration, Occupations, and Local Labor Markets: Theory and Evidence from the U.S," 2017 Meeting Papers 79, Society for Economic Dynamics.

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