Trade Induced Structural Change and the Skill Premium

72 Pages Posted: 13 Jun 2017 Last revised: 20 Sep 2024

See all articles by Javier Cravino

Javier Cravino

University of Michigan; NBER

Sebastian Sotelo

University of Michigan at Ann Arbor - Department of Economics

Date Written: June 2017

Abstract

We study how international trade affects manufacturing employment and the relative wage of unskilled workers when goods and services are traded with different intensities. Manufacturing trade reduces manufacturing prices worldwide, which reduces manufacturing employment if manufactures and services are complements. We document that manufacturing production is unskilled-labor intensive, so that these changes increase the skill-premium. We incorporate this mechanism in a quantitative trade model and show that trade has had a negative impact on manufacturing employment and the relative wage of unskilled workers. The impact on the skill premium was larger in developing countries where manufacturing is particularly unskilled-labor intensive.

Suggested Citation

Cravino, Javier and Sotelo, Sebastian, Trade Induced Structural Change and the Skill Premium (June 2017). NBER Working Paper No. w23503, Available at SSRN: https://ssrn.com/abstract=2984679

Javier Cravino (Contact Author)

University of Michigan ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
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Sebastian Sotelo

University of Michigan at Ann Arbor - Department of Economics ( email )

Ann Arbor, MI
United States

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