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Wage ratios between different percentiles of the wage distribution have moved in parallel and then diverged in the U.S. in the last 50 years. In this research, I study the theoretical response of wage ratios to skill-biased technical change and trade integration. I build a simple model of heterogeneous technology and heterogeneous workers that features complementarities between the quality of ideas and abilities. I show that changes to the skill bias of technology and to trade costs can both reproduce the observed pattern since (i) they have similar asymmetric effects on productive vs. unproductive firms, and (ii) positive assortative matching in the labor market transmits this asymmetry across high and low skill workers. Focusing on the different channels through which skill-biased technical change and trade integration operate suggests ways to disentangle the magnitude of each.
This thesis contains three essays on International Trade and Market Frictions. Chapter 1 investigates the effects of globalization on human capital investment under labor market frictions. I present a new economic geographical general equilibrium model with individuals' endogenous education choices in the institutional context of China. The model indicates that the expanding market access due to globalization, along with the restrictive household registration system and rural land policies of China, tends to intensify rural-urban college educational inequality, although globalization promotes the total human capital formation; such effects of market access on urban-rural dispersions vary across regions. Based on the testable predictions of the model from chapter 1, Chapter 2 quantified the effects imposed by market access on individuals' education decisions by using China Income Project Data for year 1995 and 2002. Chapter 2 demonstrated that each one percent increase in market access is associated with an increase in the difference between the probability of getting higher education for urban hukou holders by around 1.2 percentage points than that for rural hukou holders. Chapter 2 also provides a discussion of the econometric issues in identification and estimation of the effects of market access on individuals' education choices. Chapter 3 moves beyond labor market frictions to study the role of China's extensive subsidies in an open economy. We build a general equilibrium open economy model with heterogeneous firms to quantify the welfare effect of Chinese capital-biased subsidies. Firms are heterogeneous not in the productivities but also their capabilities to obtain subsidies from the government. Combining this two characteristics, the government decision rule is revealed as the distribution of subsidized firms which we can observe and calibrate from the Chinese firm-level data.
Part 1 of this volume focusses on globalization. Gains from trade, international competitiveness, labour market issues in open economies, customs unions, dumping and intra-firm trade are the topics of this part. Part 2 puts a stronger emphasis on dynamic economics. Social income, intergenerational transfers, public pension systems, and bequest and gift motives in overlapping generation models are main topics. Economic policies are analyzed in Part 3, including the relation between wage rigidity and migration, several aspects of German financial and monetary policy, as well as tax competition. The volume concludes with institutional issues of globalization, a western view on eastern transition, social cost of rent seeking, and the evolution of social institutions.
Since the early 1980s, the U.S. economy has experienced a growing wage differential: high-skilled workers have claimed an increasing share of available income, while low-skilled workers have seen an absolute decline in real wages. How and why this disparity has arisen is a matter of ongoing debate among policymakers and economists. Two competing theories have emerged to explain this phenomenon, one focusing on international trade and labor market globalization as the driving force behind the devaluation of low-skill jobs, and the other focusing on the role of technological change as a catalyst for the escalation of high-skill wages. This collection brings together innovative new ideas and data sources in order to provide more satisfying alternatives to the trade versus technology debate and to assess directly the specific impact of international trade on U.S. wages. This timely volume offers a thorough appraisal of the wage distribution predicament, examining the continued effects of technology and globalization on the labor market.
This dissertation employs tools from Labor Economics and International Trade to study how workers and labor markets adjust to economic shocks arising from trade liberalization and technological change. It contributes to the existing literature by studying several economic mechanisms that determine the magnitudes of these adjustments. The first chapter of this dissertation analyzes the roles that skill transferability and the local industry mix have on the adjustment costs of workers affected by negative trade shocks. Using rich administrative data from Germany, we construct novel measures of economic distance between sectors based on the notion of skill transferability. We combine these distance measures with sectoral employment shares in German regions to construct an index of labor market flexibility. This index captures the degree to which workers from a particular industry will be able to reallocate into other jobs. We then study the role of labor market flexibility on the effect of import shocks on the earnings and the employment outcomes of German manufacturing workers. Among workers living in inflexible labor markets, the difference between a worker at the 75th percentile of industry import exposure and one at the 25th percentile of exposure amounts to an earnings loss of roughly 11% of initial annual income (over a 10 year period). The earning losses of workers living in flexible regions are negligible. These findings are robust to controlling for a wide array of region level characteristics, including region size and overall employment growth. Our findings indicate that the industry composition of local labor markets plays an important role on the adjustment processes of workers. In the second chapter, we develop and apply a framework to quantify the effect of trade on aggregate welfare as well as the distribution of this aggregate effect across different groups of workers. The framework combines a multi-sector gravity model of trade with a Roy-type model of the allocation of workers across sectors. By opening to trade, a country gains in the aggregate by specializing according to its comparative advantage, but the distribution of these gains is unequal as labor demand increases (decreases) for groups of workers specialized in export-oriented (import-oriented) sectors. The model generalizes the specific-factors intuition to a setting with labor reallocation, while maintaining analytical tractability for any number of groups and countries. Our new notion of "inequality-adjusted" welfare effect of trade captures the full cross-group distribution of welfare changes in one measure, as the counterfactual scenario is evaluated by a risk-averse agent behind the veil of ignorance regarding the group to which she belongs. The quantitative application uses trade and labor allocation data across regions in Germany to compute the aggregate and distributional effects of a shock to trade costs or foreign technology levels. For the extreme case in which the country moves back to autarky we find that inequality-adjusted gains from trade are larger than the aggregate gains for both countries, as between-group inequality falls with trade relative to autarky, but the opposite happens for the shock in which China expands in the world economy. In the third chapter, we use detailed production data from a large Latin American garment manufacturer to study the process of technology adoption and resulting productivity changes within a firm. We find that the adoption of modern manufacturing techniques increases productivity through two channels, a direct effect and a spillover effect across adjacent production units. By exploiting the gradual introduction of new manufacturing techniques across independent production units, we estimate a direct effect on productivity of roughly 30%. We also estimate large spillovers to neighboring untreated units which amount to a 25% increase in productivity. Both of these effects accumulate slowly over time. The timing and the magnitudes of the estimated spillover effects corroborate qualitative evidence consistent with knowledge diffusion, learning and imitation.
Developing countries typically have wage rates that are a small fraction of those in developed countries. Trade theories traditionally attributed this difference to two factors: the relative abundance of the labor supply in the two countries and the relative value of the goods produced. These factors, however, inadequately explain the full differential in almost every comparison of developed and developing countries since the second World War. Providing an important and original perspective for understanding both the development process and policies aimed at raising the standard of living in poorer nations, Perspectives on Trade and Development gathers sixteen of Anne O. Krueger's most important essays on international trade and development economics. Her essays discuss the relationships between trade strategies and development; the links between factor endowments, developing countries' policies, and trade strategies in terms of their growth; the role of economic policy in development; and the international economic environment in which development efforts are taking place. Her analyses are extended to trade and development policies generally, and account for a substantial part of the residue unexplained by past theories. This insightful contribution by an influential scholar will be essential reading for all scholars of trade and development.