Trade Policy and Wage Inequality: A Structural Analysis with Occupational and Sectoral Mobility

46 Pages Posted: 20 Apr 2016

See all articles by Erhan Artuc

Erhan Artuc

World Bank; World Bank - Development Research Group (DECRG)

John McLaren

University of Virginia; NBER

Multiple version iconThere are 2 versions of this paper

Date Written: September 1, 2012

Abstract

A number of authors have argued that a worker's occupation of employment is at least as important as the worker's industry of employment in determining whether the worker will be hurt or helped by international trade. This paper investigates the role of occupational mobility on the effects of trade shocks on wage inequality in a dynamic, structural econometric model of worker adjustment. Each worker in the model can switch either industry, occupation, or both, paying a time-varying cost to do so in a rational-expectations optimizing environment. The authors find that the costs of switching industry and occupation are both high, and of similar magnitude, but in simulations they find that a worker's industry of employment is much more important than either the worker's occupation or skill class in determining whether he or she is harmed by a trade shock.

Keywords: Labor Markets, Labor Policies, Economic Theory & Research, Housing & Human Habitats, Work & Working Conditions

Suggested Citation

Artuc, Erhan and McLaren, John, Trade Policy and Wage Inequality: A Structural Analysis with Occupational and Sectoral Mobility (September 1, 2012). World Bank Policy Research Working Paper No. 6194. Available at SSRN: https://ssrn.com/abstract=2143560

Erhan Artuc (Contact Author)

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John McLaren

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