Trade Reforms, Foreign Competition, and Labor Market Adjustments in the U.S

55 Pages Posted: 30 May 2017

Multiple version iconThere are 2 versions of this paper

Date Written: 2013-12-01

Abstract

Using data on trade-induced displacements, this paper documents that locations facing more foreign competition in the U.S. have: higher job destruction rates, lower job creation rates, and thereby lower employment rates. In contrast to standard trade theory, a model with variable markups and heterogeneous segmented labor markets is consistent with these facts. Foreign competition has a correlated effect on job destruction and job creation precisely because the most vulnerable locations also have lower productivity. Following an unexpected trade liberalization with limited mobility, employment sharply falls in the worse hit locations while welfare and employment increase in the aggregate.

Keywords: Foreign competition, nonemployment, job flows, spatial heterogeneity

JEL Classification: F16

Suggested Citation

Kondo, Illenin, Trade Reforms, Foreign Competition, and Labor Market Adjustments in the U.S (2013-12-01). FRB International Finance Discussion Paper No. 1095. Available at SSRN: https://ssrn.com/abstract=2976789

Illenin Kondo (Contact Author)

University of Notre Dame

361 Mendoza College of Business
Notre Dame, IN 46556-5646
United States

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