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Trade-Induced Structural Change and the Skill Premium

Author

Listed:
  • 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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    File URL: http://www.fordschool.umich.edu/rsie/workingpapers/Papers651-675/r658.pdf
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    References listed on IDEAS

    as
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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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