The Effect of Trade on the Demand for Skill - Evidence from the Interstate Highway System

56 Pages Posted: 19 May 2006

See all articles by Guy Michaels

Guy Michaels

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP); London School of Economics & Political Science (LSE)

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Date Written: May 2006

Abstract

Since changes in trade openness are typically confounded with other factors, it has been difficult to identify the labor market consequences of increased international trade. The advent of the United States Interstate Highway System provides a unique policy experiment, which I use to identify the effect of reducing trade barriers on the relative demand for skilled labor. The Interstate Highway System was designed to connect major metropolitan areas, to serve national defense and to connect the United States to Canada and Mexico. As a consequence - though not an objective - many rural counties were also connected to the highway system. I find that these counties experienced an increase in trade-related activities, such as trucking and retail sales, by 7-10 percentage points per capita. Most significantly, by increasing trade the highways raised the relative demand for skilled manufacturing workers in counties with a high endowment of human capital and reduced it elsewhere, consistent with the predictions of the Heckscher-Ohlin model.

Keywords: Skill Premium, Trade, Highways

JEL Classification: F11, F16, J23, J31

Suggested Citation

Michaels, Guy and Michaels, Guy, The Effect of Trade on the Demand for Skill - Evidence from the Interstate Highway System (May 2006). Available at SSRN: https://ssrn.com/abstract=903393 or http://dx.doi.org/10.2139/ssrn.903393

Guy Michaels (Contact Author)

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
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London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP) ( email )

Houghton Street
London WC2A 2AE
United Kingdom