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GTAP Resource #5372

"U.S. labor adjustments to trade shocks"
by Tsigas, Marinos

Gains from international trade depend on the ability of economies to reallocate their factors of production. CGE international trade analyses typically model the reallocation of quite aggregate factors of production: capital and labor for example. Sometimes labor is disaggregated to skilled labor and unskilled labor. In addition to modeling the reallocation of aggregate factors of production, these factors are often assumed to be perfectly mobile across producing sectors. Focusing on the labor side of this issue, these analyses assume that skilled worker A is modeled as a perfect substitute of and competing with skilled worker Y even though these two workers may have very different work experiences, skills and knowledge, and abilities. Thus these analyses provide long-run effects. This issue is at the center of the tensions between economists and policy makers who are concerned with the imperfect mobility of labor and capital across sectors.
In this paper we explore the influence of different assumptions about labor substitutability and mobility as they relate to the U.S. labor market adjusting to trade shocks. The trade shocks which we explore range from U.S trade expansions/declines either originating in the rest of the world or as a result of U.S. trade policy.
We find that reducing substitutability between labor in different occupations and different sectors leads to a decline in export growth, but a larger welfare gain from global trade liberalization. We also find that occupational specific adjustments are not much larger than sector specific adjustments. It also appears that as we reduce substitutability between occupations and sector employment, labor adjustment shifts from employment adjustments to wage variability to some extent. Future work should analyze the dynamics of worker movements across occupations and sectors as a result of trade liberalization.

Resource Details (Export Citation) GTAP Keywords
Category: 2017 Conference Paper
Status: Published
By/In: Presented at the 20th Annual Conference on Global Economic Analysis, West Lafayette, IN, USA
Date: 2017
Created: Tsigas, M. (4/15/2017)
Updated: Tsigas, M. (4/15/2017)
Visits: 1,154
- Labor market issues
- North America

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