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International trade and labor reallocation: misclassification errors, mobility, and switching costs

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  • Maximiliano Dvorkin

Abstract

Over the last few decades, international trade has increased at a rapid pace, altering domestic production and labor demand in different sectors of the economy. A growing literature studies the heterogeneous effects of trade shocks on workers’ employment and on welfare when reallocation decisions are costly. The estimated effects critically depend on data on workers’ reallocation patterns, which is typically plagued with coding errors. In this paper, I study the consequences of misclassification errors for estimates of the labor market effects of international trade and show that structural parameter values and the estimated employment and welfare effects are biased when the analysis uses uncorrected data. I develop an econometric framework to jointly estimate misclassification probabilities, corrected mobility matrices, and structural parameters in a unified way. Under different model specifications, I compare how the estimated effects of a trade shock differ on whether the analysis uses correct mobility measures and parameters. The results show that estimated employment and welfare effects of a trade shock are substantially different, raising an important warning for quantitative exercises using mobility data with coding errors.

Suggested Citation

  • Maximiliano Dvorkin, 2021. "International trade and labor reallocation: misclassification errors, mobility, and switching costs," Working Papers 2021-014, Federal Reserve Bank of St. Louis, revised 12 Aug 2022.
  • Handle: RePEc:fip:fedlwp:93440
    DOI: 10.20955/wp.2021.014
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    References listed on IDEAS

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    More about this item

    Keywords

    international trade; labor markets; classification errors; mobility; worker reallocation; structural estimation;
    All these keywords.

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F66 - International Economics - - Economic Impacts of Globalization - - - Labor
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities

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