Occupations and Import Competition

No 1237, 2017 Meeting Papers from Society for Economic Dynamics

Abstract: There is a growing concern that many workers do not share in the gains from trade. In this paper, I argue that occupational reallocation plays a crucial role in determining the winners and losers from trade liberalization: what specific workers do \emph{within} an industry or a firm matters. Adjustment to trade liberalization can be protracted and costly, especially when workers need to switch occupations. To quantify these effects, I build and estimate a dynamic model of the Danish labor market. The model features nearly forty occupations, complicating estimation. To reduce dimensionality I project occupations onto a lower-dimensional task space. This parameter reduction coupled with conditional choice probability techniques yields a tractable nonlinear least squares problem. I find that for the median worker, a 1% decrease in income, holding the income in other occupations fixed, raises the probability of switching occupations by .3%. However, adjustment frictions can be large---on the order of five years of income---so that workers tend to move in a narrow band of similar occupations. To quantify the importance of these forces for understanding import competition, I simulate the economy with and without observed changes in import prices. In the short-run, import competition can cost workers up to one half percent of lifetime earnings. Moreover, the variance in earnings outcomes is twice the size of the total gains from trade.

Date: 2017
New Economics Papers: this item is included in nep-dge and nep-int
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Citations: View citations in EconPapers (23)

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More papers in 2017 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
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