Good Jobs, Bad Jobs, and Trade Liberalization

36 Pages Posted: 27 Jun 2007 Last revised: 28 Jul 2010

See all articles by Donald R. Davis

Donald R. Davis

Columbia University, Graduate School of Arts and Sciences, Department of Economics; National Bureau of Economic Research (NBER)

James Harrigan

University of Virginia - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: May 2007

Abstract

How do labor markets adjust to trade liberalization? Leading models of intraindustry trade (Krugman (1981), Melitz (2003)) assume homogeneous workers and full employment, and thus predict that all workers win from trade liberalization, a conclusion at odds with the public debate. Our paper develops a new model that merges Melitz (2003) with Shapiro and Stiglitz (1984), so also links product market churning to labor market churning. Workers care about their jobs because the model features aggregate unemployment and jobs that pay different wages to identical workers. Simulations show that, for reasonable parameter values, as many as one-fourth of existing "good jobs" (those with above average wage) may be destroyed in a liberalization. This is true even as the model shows minimal impact on aggregate unemployment and quite substantial aggregate gains from trade.

Suggested Citation

Davis, Donald R. and Harrigan, James, Good Jobs, Bad Jobs, and Trade Liberalization (May 2007). NBER Working Paper No. w13139. Available at SSRN: https://ssrn.com/abstract=989950

Donald R. Davis (Contact Author)

Columbia University, Graduate School of Arts and Sciences, Department of Economics ( email )

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James Harrigan

University of Virginia - Department of Economics ( email )

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United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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