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Trade Reforms, Foreign Competition, and Labor Market Adjustments in the U.S

  • Kondo, Illenin O.

    ()

    (Board of Governors of the Federal Reserve System (U.S.))

Using data on trade-induced displacements, this paper documents that locations facing more foreign competition in the U.S. have: higher job destruction rates, lower job creation rates, and thereby lower employment rates. In contrast to standard trade theory, a model with variable markups and heterogeneous segmented labor markets is consistent with these facts. Foreign competition has a correlated effect on job destruction and job creation precisely because the most vulnerable locations also have lower productivity. Following an unexpected trade liberalization with limited mobility, employment sharply falls in the worse hit locations while welfare and employment increase in the aggregate.

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File URL: http://www.federalreserve.gov/pubs/ifdp/2013/1095/ifdp1095.pdf
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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 1095.

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Length: 54 pages
Date of creation: 01 Dec 2013
Date of revision:
Handle: RePEc:fip:fedgif:1095
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