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International Trade and Labor Income Risk in the United States

Author

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  • Mine Zeynep Senses

    (Johns Hopkins University)

  • Pravin Krishna

    (Johns Hopkins University and NBER)

Abstract

This paper studies empirically the links between international trade and labor income risk faced by workers in the United States. We use longitudinal data on workers to estimate time-varying individual income risk at the industry level. We then combine our estimates of persistent labor income risk with measures of exposure to international trade to analyze the relationship between trade and labor income risk. Importantly, by contrasting estimates from various sub-samples of workers, such as those who switched to a different industry (or sector) with those who remained in the same industry throughout the sample, we study the relative importance of the different channels through which international trade affects individual income risk. Finally, we use these estimates to conduct a welfare analysis evaluating the benefits or costs of trade through the income risk channel. We find increased import penetration to have a statistically and economically significant effect on labor income risk in the US. Under standard parameter values for the inter-temporal discount rate and the rate of risk aversion, this increase in risk is (certainty) equivalent to a reduction in lifetime consumption of about five percent.

Suggested Citation

  • Mine Zeynep Senses & Pravin Krishna, 2009. "International Trade and Labor Income Risk in the United States," 2009 Meeting Papers 471, Society for Economic Dynamics.
  • Handle: RePEc:red:sed009:471
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    References listed on IDEAS

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    Cited by:

    1. Ann Harrison & John McLaren & Margaret McMillan, 2011. "Recent Perspectives on Trade and Inequality," Annual Review of Economics, Annual Reviews, vol. 3(1), pages 261-289, September.
    2. Jan Hogrefe & Yao Yao, 2016. "Offshoring and labor income risk: an empirical investigation," Empirical Economics, Springer, vol. 50(3), pages 1045-1063, May.
    3. Ann Harrison & John McLaren & Margaret S. McMillan, 2010. "Recent Findings on Trade and Inequality," NBER Working Papers 16425, National Bureau of Economic Research, Inc.
    4. Hogrefe, Jan, 2012. "Führt Offshoring zu höherem Einkommensrisiko?," ZEW Wachstums- und Konjunkturanalysen, ZEW - Leibniz Centre for European Economic Research, vol. 15(2), pages 6-7.
    5. Kurz, Christopher & Senses, Mine Z., 2016. "Importing, exporting, and firm-level employment volatility," Journal of International Economics, Elsevier, vol. 98(C), pages 160-175.
    6. Hogrefe, Jan & Yao, Yao, 2012. "Offshoring and labor income risk," ZEW Discussion Papers 12-025, ZEW - Leibniz Centre for European Economic Research.
    7. Senses, Mine Zeynep, 2010. "The effects of offshoring on the elasticity of labor demand," Journal of International Economics, Elsevier, vol. 81(1), pages 89-98, May.
    8. David Hummels & Jakob R. Munch & Lars Skipper & Chong Xiang, 2012. "Offshoring, Transition, and Training: Evidence from Danish Matched Worker-Firm Data," American Economic Review, American Economic Association, vol. 102(3), pages 424-428, May.
    9. Burgess, Robin & Donaldson, Dave, 2012. "Can openness to trade reduce income volatility? Evidence from colonial India's famine era," LSE Research Online Documents on Economics 54255, London School of Economics and Political Science, LSE Library.
    10. Sly, Nicholas, 2010. "Skill Acquisition, Incentive Contracts and Jobs: Labor Market Adjustment to Trade," MPRA Paper 25004, University Library of Munich, Germany.

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    More about this item

    JEL classification:

    • F1 - International Economics - - Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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