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Trade Liberalisation and Human Capital Adjustment

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Listed author(s):
  • Rod Falvey
  • David Greenaway
  • Joana Silva

Abstract

This paper highlights the way in which workers of different age and ability are affected by anticipated and unanticipated trade liberalisations. A two-factor (skilled and unskilled labour), two-sector Heckscher-Ohlin model is supplemented with an education sector which uses skilled labour and time to convert unskilled into skilled workers. A skilled worker’s income depends on ability, but all unskilled workers have the same income. Trade liberalisation in an abundant country increases the relative wage and induces skill upgrading by existing workforce. Younger and more able workers are most likely to upgrade, but not all are better off after liberalisation: Older and less able upgraders are likely to lose. For an anticipated liberalisation the preferred upgrading strategies depend on ability and much of the upgrading takes place before liberalisation. This implies that some workers who would have upgraded had they anticipated the liberalisation will not do so if it is unanticipated, and post-liberalisation adjustment assistance will fail to compensate some losers and distort the upgrading decisions of others.

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File URL: http://www.nottingham.ac.uk/gep/documents/papers/2007/07-34.pdf
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Paper provided by University of Nottingham, GEP in its series Discussion Papers with number 07/34.

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Handle: RePEc:not:notgep:07/34
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Keywords: International trade; Factor mobility; Labour market adjustment;

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  1. Ngo Van Long & Raymond Riezman & Antoine Soubeyran, 2007. "Trade, Wage Gaps, and Specific Human Capital Accumulation," Review of International Economics, Wiley Blackwell, vol. 15(1), pages 75-92, 02.
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  7. Carl Davidson & Steven J. Matusz, 2006. "Trade Liberalization And Compensation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(3), pages 723-747, 08.
  8. Matusz, Steven J. & Tarr, David, 1999. "Adjusting to trade policy reform," Policy Research Working Paper Series 2142, The World Bank.
  9. Udo Kreickemeier, 2009. "Trade, technology, and unemployment: the role of endogenous skill formation," Canadian Journal of Economics, Canadian Economics Association, vol. 42(2), pages 639-664, May.
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  12. Martin, John P, 1976. "Variable Factor Supplies and the Heckscher-Ohlin-Samuelson Model," Economic Journal, Royal Economic Society, vol. 86(344), pages 820-831, December.
  13. Davidson, Carl & Matusz, Steven J. & Nelson, Douglas R., 2007. "Can compensation save free trade?," Journal of International Economics, Elsevier, vol. 71(1), pages 167-186, March.
  14. Carl Davidson & Steven J. Matusz, 2004. "An Overlapping-generations Model of Escape Clause Protection," Review of International Economics, Wiley Blackwell, vol. 12(5), pages 749-768, November.
  15. Paul Segerstrom & Elias Dinopoulos, 1999. "A Schumpeterian Model of Protection and Relative Wages," American Economic Review, American Economic Association, vol. 89(3), pages 450-472, June.
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Cited by:

  1. Harris, Richard G. & Robertson, Peter E., 2013. "Trade, wages and skill accumulation in the emerging giants," Journal of International Economics, Elsevier, vol. 89(2), pages 407-421.
  2. Artuc, Erhan, 2012. "Workers'age and the impact of trade shocks," Policy Research Working Paper Series 6035, The World Bank.
  3. Joël Hellier, 2012. "The North-South HOS Model, inequality and globalization," Working Papers 244, ECINEQ, Society for the Study of Economic Inequality.
  4. Nils Herger, 2015. "An uncovered interest parity condition that worked - The continental investment demand for London bills of exchange during the gold standard (1880 -1914)," Working Papers 15.04, Swiss National Bank, Study Center Gerzensee.
  5. Emily Blanchard & Gerald Willmann, 2013. "Trade, Education, and the Shrinking Middle Class," CESifo Working Paper Series 4141, CESifo Group Munich.
  6. Auer, Raphael A., 2015. "Human capital and the dynamic effects of trade," Journal of Development Economics, Elsevier, vol. 117(C), pages 107-118.
  7. Nathalie Chusseau & Joel Hellier, 2014. "Globalization and social segmentation," Working Papers 339, ECINEQ, Society for the Study of Economic Inequality.
  8. Blanchard, Emily & Willmann, Gerald, 2013. "Trade, education, and the shrinking middle class," Kiel Working Papers 1831, Kiel Institute for the World Economy (IfW).
  9. Peter Egger & Sergey K. Nigai, 2016. "World-Trade Growth Accounting," CESifo Working Paper Series 5831, CESifo Group Munich.
  10. Davidson, Carl & Sly, Nicholas, 2014. "A simple model of globalization, schooling and skill acquisition," European Economic Review, Elsevier, vol. 71(C), pages 209-227.
  11. ICHIDA Toshihiro, 2011. "A Model of Multi-Dimensional Human Capital Investment: Specific vs. general investments under uncertainty," Discussion papers 11056, Research Institute of Economy, Trade and Industry (RIETI).
  12. Emily Blanchard & Gerald Willmann, 2007. "Political Stasis or Protectionist Rut? Policy Mechanisms for Trade Reform in a Democracy," CESifo Working Paper Series 2070, CESifo Group Munich.
  13. Fabien Candau & Elisa Dienesch, 2015. "Spatial distribution of skills and regional trade integration," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 54(2), pages 451-488, March.
  14. Blanchard, Emily & Willmann, Gerald, 2011. "Escaping a protectionist rut: Policy mechanisms for trade reform in a democracy," Journal of International Economics, Elsevier, vol. 85(1), pages 72-85, September.
  15. Blanchard, Emily & Willmann, Gerald, 2016. "Trade, education, and the shrinking middle class," Journal of International Economics, Elsevier, vol. 99(C), pages 263-278.
  16. Greenland, Andrew & Lopresti, John, 2016. "Import exposure and human capital adjustment: Evidence from the U.S," Journal of International Economics, Elsevier, vol. 100(C), pages 50-60.
  17. Rod Falvey & David Greenaway & Joana Silva, "undated". "International Competition, Returns to Skill and Labor Market Adjustment," Discussion Papers 08/10, University of Nottingham, GEP.

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