Intergenerational Effects of Trade Liberalization
2002 Pew Global Attitudes survey shows that workers’ support for free trade decreases with age, which is a phenomenon previously unexplored by economists. We explore distributional effects of trade liberalization in particular age and gains from free trade, using a dynamic structural general equilibrium model. The model we develop here is in the same spirit as Artuc, Chaudhuri and McLaren (2007), but allows for a much richer treatment of both ex-ante and endogenous worker heterogeneity. This feature requires a completely different estimation strategy, which comes at a cost of more computation time and stronger assumptions on workers’ expectations. After estimating the structural model with U.S. data sets NLSY and CPS, we simulate a hypothetical trade liberalization in metal manufacturing sector (which has been especially vulnerable to trade shocks in the past, the steel industry in particular). We show gradual adjustment of labor allocation, wages and prices in response to this trade shock. We ﬁnd a “mirror effect” where very young workers are either moderately better off or moderately worse off, while older workers are either extremely better off or extremely worse off depending on their sectors.
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