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Labor Market Polarization and International Macroeconomic Dynamics

  • Federico Mandelman

    (Federal Reserve Bank of Atlanta)

During the last thirty years, labor markets in advanced economies where characterized by their remarkable polarization. As job opportunities in middle-skill occupations disappeared, employment opportunities concentrated in the highest- and lowest wage occupations. I develop a two-country stochastic growth model that incorporates trade in tasks, rather than in goods, and reveal that this setup can replicate the observed polarization in the U.S. This polarization was not an steady process: the relative employment share of each skill group significantly fluctuated over short-to medium horizons. I show that the domestic and international aggregate shocks estimated within this framework can rationalize such employment dynamics, while providing a good fit to the macroeconomic data. The model is estimated with employment data for different skills groups, and trade-weighted macroeconomic indicators.

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Paper provided by Society for Economic Dynamics in its series 2013 Meeting Papers with number 291.

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Date of creation: 2013
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Handle: RePEc:red:sed013:291
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

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