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Title: Trade and Inequality Across Local Labor Markets: The Margins of Adjustment

Citation Type: Miscellaneous

Publication Year: 2018

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Abstract: Empirical research has documented the importance of non-wage margins of adjustment in the response of local labor markets to trade shocks. To formalize this observation empirically, we decompose the differential impact of a trade shock across U.S. local labor markets (by labor group) on per capita labor income into wage, hours worked per employee, unemployment, and labor force participation margins of adjustment. Our results highlight the importance of heterogeneous treatment effects and quantify the relative importance of non-wage margins of adjustment. To understand the economic mechanisms generating observed effects of trade on regional inequality, we provide a unifying trade framework (featuring frictional unemployment and a labor/leisure tradeoff) and comparative static results across local labor markets by labor group and margin of adjustment. Our theory highlights the importance of heterogeneity in the elasticity of labor supply and the elasticity of matches to vacancies for understanding heterogeneous effects identified in empirical research. We recover these for each labor group by combining our empirical and theoretical results and show that our estimates are broadly in line with vast literatures in labor, public finance, and macroeconomics; where results differ, we suggest a path forward.

Url: http://www.econ.ucla.edu/jvogel/KV.pdf

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Authors: Kim, Ryan; Vogel, Jonathan

Publisher: Johns Hopkins

Data Collections: IPUMS USA

Topics: Labor Force and Occupational Structure, Other

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