Trade, Education, and the Shrinking Middle Class

41 Pages Posted: 14 Feb 2013

See all articles by Emily J. Blanchard

Emily J. Blanchard

Dartmouth College - Tuck School of Business

Gerald Willmann

Bielefeld University; IfW Kiel; KU Leuven; CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 2 versions of this paper

Date Written: February 12, 2013

Abstract

We develop a new model of trade in which educational institutions drive comparative advantage and determine the distribution of human capital within and across countries. Our framework exploits a multiplicity of sectors and the continuous support of human capital choices to demonstrate that freer trade can induce crowding out of the middle occupations towards the skill acquisition extremes in one country, and simultaneous expansion of middle-income industries in another. Individual gains from trade may be non-monotonic in workers' ability, and middle ability agents can lose the most from trade liberalization. Comparing trade and education policy, we find that targeted education subsidies are more effective than tariffs as a means to preserve "middle class" jobs, while uniform educational subsidies have no effect.

Keywords: Trade and Education Policy, Skill Acquisition, Education, In-come Distribution

JEL Classification: F11, F13, F15, F16

Suggested Citation

Blanchard, Emily J. and Willmann, Gerald, Trade, Education, and the Shrinking Middle Class (February 12, 2013). Bielefeld Working Papers in Economics and Management No. 03-2013. Available at SSRN: https://ssrn.com/abstract=2216593 or http://dx.doi.org/10.2139/ssrn.2216593

Emily J. Blanchard

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

Gerald Willmann (Contact Author)

Bielefeld University ( email )

Universit├Ątsstra├če 25
Bielefeld, NRW 33613
Germany

IfW Kiel ( email )

P.O. Box 4309
Kiel, D-24100
Germany

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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