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

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  • Kondo, Illenin O.

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

Abstract

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.

Suggested Citation

  • Kondo, Illenin O., 2013. "Trade Reforms, Foreign Competition, and Labor Market Adjustments in the U.S," International Finance Discussion Papers 1095, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgif:1095
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Lorenzo Caliendo & Luca David Opromolla & Fernando Parro & Alessandro Sforza, 2017. "Goods and Factor Market Integration: A Quantitative Assessment of the EU Enlargement," CEP Discussion Papers dp1494, Centre for Economic Performance, LSE.
    2. Lainez, Christopher & Matschke, Xenia & Yotov, Yoto, 2016. "Policy and Politics: Trade Adjustment Assistance in the Crossfire," School of Economics Working Paper Series 2016-5, LeBow College of Business, Drexel University.
    3. Uysal, Pinar & Yotov, Yoto V. & Zylkin, Thomas, 2015. "Firm heterogeneity and trade-induced layoffs: An empirical investigation," European Economic Review, Elsevier, vol. 75(C), pages 80-97.
    4. Maximiliano Dvorkin & Fernando Parro & Lorenzo Caliendo, 2015. "The Impact of Trade on Labor Market Dynamics," 2015 Meeting Papers 1532, Society for Economic Dynamics.
    5. Pérez-Cervantes Fernando & Sandoval Hernández Aldo, 2015. "Estimating the Short-Run Effect on Market-Access of the Construction of Better," Working Papers 2015-15, Banco de México.
    6. Rafael Dix-Carneiro & Brian K. Kovak, 2015. "Trade Reform and Regional Dynamics: Evidence From 25 Years of Brazilian Matched Employer-Employee Data," NBER Working Papers 20908, National Bureau of Economic Research, Inc.
    7. Dix Carneiro,Rafael & Kovak,Brian K., 2015. "Trade reform and regional dynamics : evidence from 25 years of Brazilian matched employer-employee data," Policy Research Working Paper Series 7205, The World Bank.
    8. Monarch, Ryan & Park, Jooyoun & Sivadasan, Jagadeesh, 2017. "Domestic gains from offshoring? Evidence from TAA-linked U.S. microdata," Journal of International Economics, Elsevier, vol. 105(C), pages 150-173.
    9. 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.
    10. Lorenzo CALIENDO & Maximiliano DVORKIN & Fernando PARRO, 2016. "Trade and Labor Market Dynamics," Discussion papers 16050, Research Institute of Economy, Trade and Industry (RIETI).
    11. Caliendo, Lorenzo & Dvorkin, Maximiliano & Parro, Fernando, 2015. "Trade and Labor Market Dynamics: General Equilibrium Analysis of the China Trade Shock," Working Papers 2015-9, Federal Reserve Bank of St. Louis, revised 25 Jul 2017.
    12. Rafael Dix-Carneiro & Brian K. Kovak, 2017. "Margins of Labor Market Adjustment to Trade," NBER Working Papers 23595, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    Foreign competition; nonemployment; job flows; spatial heterogeneity;

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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