I study how international trade affects labor market outcomes and economic growth. In the first chapter, I study how international trade affects wage inequality within and between firms. Using matched employer-employee data from Germany, I document that the firm-size wage premium is higher for skilled compared to less-skilled workers and that larger firms disproportionately employ more skilled workers. I show, using a new quantitative framework, that non-homothetic production and monopsonistic competition in labor markets can rationalize these reduced-form findings. To estimate the model, I propose a new econometric method to identify non-homotheticity in the presence of upward-sloping labor supply curves separately. Counterfactual exercises quantitatively show that the mechanism implies sizeable distributional effects of trade. The second chapter, co-authored with Yann Koby, combines reduced-form evidence with a new model of a dynamic multi-country and multi-sector economy to study the link between trade and structural transformation. The model accounts for major drivers of structural change—including sector-biased technological change and income effects, as well as technological and factor-driven motives for trade. We provide a characterization of the existence and uniqueness of the equilibrium. We quantify the model to the years 1995 to 2011 and then use it to discuss the decline in U.S. manufacturing and the role of service trade in influencing employment in the manufacturing sector. The third chapter, co-authored with Bastian Krieger, studies the effect of trade in services on firms' innovation activities. We combine unique micro-data from Germany with a simple theory of international trade and innovation to provide causal evidence that trade in innovation services increases innovative activities in firms, accounting for market size and competition effects of trade integration.
This dissertation employs tools from Labor Economics and International Trade to study how workers and labor markets adjust to economic shocks arising from trade liberalization and technological change. It contributes to the existing literature by studying several economic mechanisms that determine the magnitudes of these adjustments. The first chapter of this dissertation analyzes the roles that skill transferability and the local industry mix have on the adjustment costs of workers affected by negative trade shocks. Using rich administrative data from Germany, we construct novel measures of economic distance between sectors based on the notion of skill transferability. We combine these distance measures with sectoral employment shares in German regions to construct an index of labor market flexibility. This index captures the degree to which workers from a particular industry will be able to reallocate into other jobs. We then study the role of labor market flexibility on the effect of import shocks on the earnings and the employment outcomes of German manufacturing workers. Among workers living in inflexible labor markets, the difference between a worker at the 75th percentile of industry import exposure and one at the 25th percentile of exposure amounts to an earnings loss of roughly 11% of initial annual income (over a 10 year period). The earning losses of workers living in flexible regions are negligible. These findings are robust to controlling for a wide array of region level characteristics, including region size and overall employment growth. Our findings indicate that the industry composition of local labor markets plays an important role on the adjustment processes of workers. In the second chapter, we develop and apply a framework to quantify the effect of trade on aggregate welfare as well as the distribution of this aggregate effect across different groups of workers. The framework combines a multi-sector gravity model of trade with a Roy-type model of the allocation of workers across sectors. By opening to trade, a country gains in the aggregate by specializing according to its comparative advantage, but the distribution of these gains is unequal as labor demand increases (decreases) for groups of workers specialized in export-oriented (import-oriented) sectors. The model generalizes the specific-factors intuition to a setting with labor reallocation, while maintaining analytical tractability for any number of groups and countries. Our new notion of "inequality-adjusted" welfare effect of trade captures the full cross-group distribution of welfare changes in one measure, as the counterfactual scenario is evaluated by a risk-averse agent behind the veil of ignorance regarding the group to which she belongs. The quantitative application uses trade and labor allocation data across regions in Germany to compute the aggregate and distributional effects of a shock to trade costs or foreign technology levels. For the extreme case in which the country moves back to autarky we find that inequality-adjusted gains from trade are larger than the aggregate gains for both countries, as between-group inequality falls with trade relative to autarky, but the opposite happens for the shock in which China expands in the world economy. In the third chapter, we use detailed production data from a large Latin American garment manufacturer to study the process of technology adoption and resulting productivity changes within a firm. We find that the adoption of modern manufacturing techniques increases productivity through two channels, a direct effect and a spillover effect across adjacent production units. By exploiting the gradual introduction of new manufacturing techniques across independent production units, we estimate a direct effect on productivity of roughly 30%. We also estimate large spillovers to neighboring untreated units which amount to a 25% increase in productivity. Both of these effects accumulate slowly over time. The timing and the magnitudes of the estimated spillover effects corroborate qualitative evidence consistent with knowledge diffusion, learning and imitation.
Part 1 of this volume focusses on globalization. Gains from trade, international competitiveness, labour market issues in open economies, customs unions, dumping and intra-firm trade are the topics of this part. Part 2 puts a stronger emphasis on dynamic economics. Social income, intergenerational transfers, public pension systems, and bequest and gift motives in overlapping generation models are main topics. Economic policies are analyzed in Part 3, including the relation between wage rigidity and migration, several aspects of German financial and monetary policy, as well as tax competition. The volume concludes with institutional issues of globalization, a western view on eastern transition, social cost of rent seeking, and the evolution of social institutions.
This volume collects theoretical papers on the labor market effects of international trade that Udo Kreickemeier has published, together with different co-authors, over the past decade. Many contributions contained in this volume feature labor market imperfections that give rise to involuntary unemployment, and in those contributions, the question of how trade affects aggregate employment typically takes center stage in the analysis. Another recurring theme in many papers is the link between international trade and the income distribution within countries. The channels explored in the different papers include union wage premia, exporter wage premia due to firm-level rent sharing, and ability premia to entrepreneurs that are able to capitalize on their high productivity in global markets.
This dissertation consists of a series of papers studying the effect that globalization in its multiple forms has had on Mexican local labor markets. In Chapter 1, 'Trade Shocks and Mexican Local Labor Markets in the Great Recession', I study the role that international trade played in the transmission of the U.S. credit crisis to Mexican local labor markets. The economic opening process that Mexico started by opening up to international trade in the mid-1980s when it became a member of the GATT, and then reinforced in 1994 when NAFTA was enacted, has created a strong link between the business cycles of Mexico and the United States (Robertson, 2000). This trade-driven phenomenon has had significant consequences for Mexico's economic geography (Hanson, 1996). In particular, easier access to the U.S. market increased the level of dependence on exports to the U.S. for some Mexican municipalities. This increase in dependence was not homogenous throughout the country, mostly due to differences by municipality in transportation costs and industry specialization. This heterogeneity, plus the evolution of U.S. trade during the Great Recession (2007-2009), which involved a $40 billion drop in U.S. imports from Mexico, allows me to identify the role that these trade linkages played in the transmission of the crisis to Mexican local labor markets. I show that differences in manufacturing industry structure caused by Mexico's opening process have made a subset of Mexican municipalities especially vulnerable to economic events in the U.S. I find that Mexican regions that exported relatively more to the U.S. experienced large and significant differential effects when compared to municipalities more focused on the domestic market. Mexican regions with significant ties to the U.S. market experienced, during the crisis, a significantly larger decrease in employment and wages, and greater within local labor market adjustments than their less open counterparts, mainly characterized by large drops in manufacturing employment and significant increases in employment in the service and agricultural industries. Pursuing the same line of research, the second chapter of my dissertation explores 'The Effect of Chinese Import Competition on Mexican Local Labor Markets'. Recent estimates of the effect of globalization on labor markets have found that trade is having an increasingly larger impact on wage inequality. Particularly relevant is the "China Syndrome" study by Autor, Dorn, and Hanson (2013a), which presents evidence on the disruptive effects that import competition can have on a developed economy by estimating the impact that Chinese import competition had on U.S. local labor markets. One would expect to find that Chinese exports also had a large and significant effect on developing economies, particularly on those specialized in the production of labor-intensive goods. My paper contributes to the study of this relationship by analyzing the Mexican case. Following the methodology introduced in Autor et al. (2013a), I exploit variation across Mexican regions in import exposure stemming from initial differences in industry specialization in order to estimate the effect Chinese competition had on local Mexican labor markets. Also, by taking advantage of the Mexican exports' high dependence on the U.S. market, I estimate the effect that China-caused trade diversion had on Mexican labor markets. I find that the increase in competition decreased the employment share in manufacturing for the average Mexican local labor market. This effect was found to be larger for regions with high exposure to Chinese competition in the U.S. market, showing that there was a significant, negative indirect effect from China's trade growth. Workers' mobility also increased due to this negative shock. I name the third chapter 'Mexican Migrants' Response to a Trade Shock'. This study exploits the variation created by Chinese import competition across Mexican states and combines it with variation across U.S. states in their likelihood of receiving Mexican migrants in order to yield a causal estimate of the variation in the Mexican share of the labor force across U.S. states. The purpose of this study is both to determine whether international migration can be affected by external trade shocks, a topic very scantily studied in the economic literature of both trade and migration, and to open the doors to a study of migration effects on the receiving economy by using a plausibly exogenous shock to migration, as is the increase in import competition by China. I find that the increase in Mexican imports from China had a significant effect on Mexican workers' mobility towards the U.S. labor markets.
Internationalization of the world economy has made trade a key factor in the growth potential of nearly every economy. Hence, economists have become increasingly interested in the determinants of international trade and competitiveness. Empirical Models i
This collection of essays draws from over thirty years of work by noted economist Pranab Bardhan to address the inter-related themes of international trade, growth, and rural development. Covering a wide range of important issues within the field, these essays describe theoretical and empirical perspectives on economic agents both at the micro and macro levels of the economy in development. Introductions to each of the book's three sections place the articles in perspective and relate them to current research.
