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Trade-Induced Structural Change and the Skill Premium†

Trade-Induced Structural Change and the Skill Premium† AbstractWe study how international trade affects manufacturing employment and the relative wage of unskilled workers when goods and services are traded with different intensities. Manufacturing trade reduces manufacturing prices worldwide, which reduces manufacturing employment if manufactures and services are complements. International trade also raises real income, which reduces manufacturing employment if services are more income elastic than manufactures. Manufacturing production is unskilled-labor-intensive, so that these changes increase the skill premium. We incorporate these mechanisms in a quantitative trade model and show that reductions in trade costs had a negative impact on manufacturing employment and the relative wage of unskilled workers. (JEL F16, J24, J31, L60) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Macroeconomics American Economic Association

Trade-Induced Structural Change and the Skill Premium†

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Publisher
American Economic Association
Copyright
Copyright © 2019 © American Economic Association
ISSN
1945-7715
DOI
10.1257/mac.20170434
Publisher site
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Abstract

AbstractWe study how international trade affects manufacturing employment and the relative wage of unskilled workers when goods and services are traded with different intensities. Manufacturing trade reduces manufacturing prices worldwide, which reduces manufacturing employment if manufactures and services are complements. International trade also raises real income, which reduces manufacturing employment if services are more income elastic than manufactures. Manufacturing production is unskilled-labor-intensive, so that these changes increase the skill premium. We incorporate these mechanisms in a quantitative trade model and show that reductions in trade costs had a negative impact on manufacturing employment and the relative wage of unskilled workers. (JEL F16, J24, J31, L60)

Journal

American Economic Journal: MacroeconomicsAmerican Economic Association

Published: Jul 1, 2019

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