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Trade-Induced Structural Change and the Skill Premium

Author

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  • Javier Cravino

    (University of Michigan and NBER)

  • Sebastian Sotelo

    (University of Michigan)

Abstract

We study how international trade affects manufacturing employment and the relative wage of unskilled workers when goods and services are traded with different intensities. Manufacturing trade reduces manufacturing prices worldwide, which reduces manufacturing employment if manufactures and services are complements. We document that manufacturing production is unskilled-labor intensive, so that these changes increase the skill-premium. We incorporate this mechanism in a quantitative trade model and show that trade has had a negative impact on manufacturing employment and the relative wage of unskilled workers. The impact on the skill premium was larger in developing countries where manufacturing is particularly unskilled-labor intensive.

Suggested Citation

  • Javier Cravino & Sebastian Sotelo, 2017. "Trade-Induced Structural Change and the Skill Premium," Working Papers 658, Research Seminar in International Economics, University of Michigan.
  • Handle: RePEc:mie:wpaper:658
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    References listed on IDEAS

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    8. Alan V. Deardorff & Robert W. STAIGER, 2011. "An Interpretation Of The Factor Content Of Trade," World Scientific Book Chapters, in: Robert M Stern (ed.), Comparative Advantage, Growth, And The Gains From Trade And Globalization A Festschrift in Honor of Alan V Deardorff, chapter 38, pages 531-545, World Scientific Publishing Co. Pte. Ltd..
    9. Basco, Sergi & Mestieri, Martí, 2013. "Heterogeneous trade costs and wage inequality: A model of two globalizations," Journal of International Economics, Elsevier, vol. 89(2), pages 393-406.
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    Citations

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    Cited by:

    1. Yang, Han, 2020. "Dynamic Trade, Education and Intergenerational Inequality," MPRA Paper 99976, University Library of Munich, Germany.
    2. Sposi, Michael, 2019. "Evolving comparative advantage, sectoral linkages, and structural change," Journal of Monetary Economics, Elsevier, vol. 103(C), pages 75-87.
    3. Ricardo Reyes-Heroles & Sharon Traiberman & Eva Van Leemput, 0. "Emerging Markets and the New Geography of Trade: The Effects of Rising Trade Barriers," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 0, pages 1-53.
    4. Winkler, Erwin, 2020. "Diverging paths: Labor reallocation, sorting, and wage inequality," VfS Annual Conference 2020 (Virtual Conference): Gender Economics 224535, Verein für Socialpolitik / German Economic Association.
    5. Antràs, Pol & de Gortari, Alonso & Itskhoki, Oleg, 2017. "Globalization, inequality and welfare," Journal of International Economics, Elsevier, vol. 108(C), pages 387-412.
    6. Rodrigo Adão & Costas Arkolakis & Federico Esposito, 2019. "General Equilibrium Effects in Space: Theory and Measurement," NBER Working Papers 25544, National Bureau of Economic Research, Inc.
    7. Logan Lewis & Ryan Monarch & Michael Sposi & Jing Zhang, 2018. "Structural Change and Global Trade," Departmental Working Papers 1806, Southern Methodist University, Department of Economics.
    8. Cravino, Javier & Levchenko, Andrei A. & Rojas, Marco, 2019. "Population aging and structural transformation," CEPR Discussion Papers 14026, C.E.P.R. Discussion Papers.
    9. Ricardo Reyes-Heroles & Sharon Traiberman & Eva Van Leemput, 2020. "Emerging Markets and the New Geography of Trade: The Effects of Rising Trade Barriers," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 68(3), pages 456-508, September.
    10. Rodrigo Adão & Costas Arkolakis & Federico Espósito, 2019. "Spatial Linkages, Global Shocks, and Local Labor Markets: Theory and Evidence," Cowles Foundation Discussion Papers 2163, Cowles Foundation for Research in Economics, Yale University.
    11. Yang, Han, 2019. "Dynamic Trade, Education and Intergenerational Inequality," MPRA Paper 96054, University Library of Munich, Germany.
    12. Ricardo Reyes-Heroles, 2018. "Globalization and Structural Change in the United States: A Quantitative Assessment," 2018 Meeting Papers 1027, Society for Economic Dynamics.
    13. Mariarosaria Comunale & Giulia Felice, 2019. "An empirical investigation of the relationship between trade and structural change," Bank of Lithuania Working Paper Series 62, Bank of Lithuania.
    14. Caron, Justin & Fally, Thibault & Markusen, James, 2020. "Per capita income and the demand for skills," Journal of International Economics, Elsevier, vol. 123(C).
    15. Myeongwan Kim, 2020. "The Price Effect of Trade: Evidence of the China Shock and Canadian Consumer Prices," CSLS Research Reports 2020-02, Centre for the Study of Living Standards.
    16. Khan, Muhammad Aamir, 2020. "Cross sectoral linkages to explain structural transformation in Nepal," Structural Change and Economic Dynamics, Elsevier, vol. 52(C), pages 221-235.
    17. Ryan Monarch & Jing Zhang & Logan Lewis, 2017. "Structural Change and Slowdown of International Trade," 2017 Meeting Papers 1542, Society for Economic Dynamics.
    18. Lidia Smitkova, 2018. "Does Openness Matter for Structural Change?," 2018 Meeting Papers 257, Society for Economic Dynamics.
    19. Lee, Eunhee, 2020. "Trade, inequality, and the endogenous sorting ofheterogeneous workers," Journal of International Economics, Elsevier, vol. 125(C).

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    More about this item

    Keywords

    Trade; Skill Premium; Manufacturing Employment; Structural Change; Gains From Trade;
    All these keywords.

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development

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