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Trade and Labor Market Dynamics
November 19, 2015Macro, Trade, and Finance Seminar Series

Speaker: Lorenzo Caliendo is an Assistant Professor of Economics at Yale. More »

Abstract: We develop a dynamic trade model where production and consumption take place in spatially distinct labor markets with varying exposure to domestic and international trade. The model recognizes the role of labor mobility frictions, goods mobility frictions, geographic factors, and input-output linkages in determining equilibrium allocations. We show how to solve the equilibrium of the model without estimating productivities, migration frictions, or trade costs, which are usually difficult to identify. We calibrate the model to 38 countries, 50 U.S. states, and 22 sectors and use the rise in China’s import competition to quantify the effects across more than a thousand U.S. labor markets. We find that China’s trade shock resulted in a loss of 0.8 million U.S. manufacturing jobs, about 50 percent of the change in the manufacturing employment share unexplained by a secular trend. We find aggregate welfare gains but, due to trade and migration frictions, the welfare and employment effects vary across U.S. labor markets. Estimated transition costs to the new long-run equilibrium are also heterogeneous and reflect the importance of accounting for labor dynamics.

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Last Updated: Nov 13, 2015

The Macro, Trade, and Finance Seminar Series is a weekly series hosted by the World Bank's research department. The series invites leading researchers from the fields of macroeconomics, growth, trade, international integration, and finance to present the results of their most recent research in a seminar format. The full list of seminars can be viewed here.

Last Updated: Jul 27, 2015

Event Details
  • Date: November 19, 2015
  • Location: MC 9 -100
  • Time: 12:30 - 2:00 PM
  • CONTACT: Shweta Mesipam
  • smesipam@worldbank.org

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