Essays On International Trade And Labor Market Outcomes

This thesis develops empirical methodologies to investigate the effect of globalization on welfare and inequality both between- and within-countries. The first essay proposes a Roy-like model where workers are heterogeneous ill terms of their comparative and absolute advantage. We show that the schedules of comparative and absolute advantage (i) determine changes in the average and the variance of the log-wage distribution, and (ii) are nonparamnetrically identified from the cross-regional variation in the sectoral responses of employment and wages to observable sector-level demand shifters. Applying these results, we find that the rise in world commodity prices accounts for 5-10% of the fall in Brazilian wage inequality between 1991 and 2010. The second essay develops a methodology to construct nonparametric counterfactual predictions, free of functional-form restrictions on preferences and technology, in neoclassical models of international trade. First, we establish the equivalence between such models and reduced exchange models in which countries directly exchange factor services. This equivalence implies that, for an arbitrary change in trade costs, counterfactual changes in factor prices, and welfare only depend on the shape of a reduced factor demand system. Second, we provide sufficient conditions for the nionparainetric identification of this system. Together, these results offer a strict generalization of the parametric approach used in so-called gravity models. Finally, we use China's recent integration into the world economy to illustrate tile feasibility of our approach. The third essay investigates the connection between the recent rise in services trade and changes in labor market outcomes in different countries. We develop a theoretical framework where trade in services arises from the spatial unbundling of workers' task output. Transmission costs endogenously determine the magnitude of between-sector task trade both within a country ("outsourcing") and between countries ("offshoring"). We show that, while differentials in sectoral task prices decrease in response to outsourcing, they increase in response to offshoring. The heterogeneity in the composition of workers' task endowments controls responses in between- and within-sector wage inequality across countries.

I study how international trade affects labor market outcomes and economic growth. In the first chapter, I study how international trade affects wage inequality within and between firms. Using matched employer-employee data from Germany, I document that the firm-size wage premium is higher for skilled compared to less-skilled workers and that larger firms disproportionately employ more skilled workers. I show, using a new quantitative framework, that non-homothetic production and monopsonistic competition in labor markets can rationalize these reduced-form findings. To estimate the model, I propose a new econometric method to identify non-homotheticity in the presence of upward-sloping labor supply curves separately. Counterfactual exercises quantitatively show that the mechanism implies sizeable distributional effects of trade. The second chapter, co-authored with Yann Koby, combines reduced-form evidence with a new model of a dynamic multi-country and multi-sector economy to study the link between trade and structural transformation. The model accounts for major drivers of structural change—including sector-biased technological change and income effects, as well as technological and factor-driven motives for trade. We provide a characterization of the existence and uniqueness of the equilibrium. We quantify the model to the years 1995 to 2011 and then use it to discuss the decline in U.S. manufacturing and the role of service trade in influencing employment in the manufacturing sector. The third chapter, co-authored with Bastian Krieger, studies the effect of trade in services on firms' innovation activities. We combine unique micro-data from Germany with a simple theory of international trade and innovation to provide causal evidence that trade in innovation services increases innovative activities in firms, accounting for market size and competition effects of trade integration.

This dissertation contains three essays on how value-added trade affect the U.S. labor market outcomes. In the most recent presidential competition, we observed how voter angst against economic globalization had a considerable impact on the election results. This dissertation seeks to shed light on how the changes in exposure to value-added trade affect individual wages, the probability of being unemployed as well as the likelihood of being married with consideration of each worker's occupation, the level of skill, and gender. In the first essay, we link U.S. industry-level value-added trade data with U.S. worker-level data from the Current Population Surveys from 1995 to 2009. We find that U.S. occupational exposure to value-added imports has a negative effect on the wages earned by intermediate-routine workers, which leads to wage polarization among American workers. In particular, the polarization of wages is driven by occupational exposure to value-added imports of final goods from middle-income countries, while exposure to final goods imported from high-income countries has a negative, albeit more fairly distributed, effect across U.S. workers' wages. On the other hand, occupational exposure to value-added imports of intermediate goods from middle-income countries is associated with a positive wage effect for least-routine workers, signaling to the presence of strong complementarities between the group of least-routine workers and imports of intermediate goods from this group of countries. In the second essay, we investigate the contribution of the degree of occupation routineness and the level of a worker's skill in determining the effects of U.S. exposure to value-added trade on U.S. labor market outcomes. We apply three main approaches to examine how the interplay between routineness and skills is essential in explaining the effects of U.S. exposure to value-added trade flows. First, we find that the increase in occupational exposure to value-added imports of final goods from middle-income countries is the primary driver of polarization of wages in the U.S. labor market within each skill group, where the effect on workers in the occupations with moderate levels of routineness is most adversely affected. Comparing the wage effects for workers within each routineness group, we find that skilled workers tend to face smaller pressure on their wages from import competition than the unskilled. Second, we examine the impact of exposure to value-added trade on the probability of being unemployed at the worker level. We show that an increase in exposure to value-added imports will raise the employment-related uncertainty for unskilled workers relative to skilled workers. Third, we estimate the transition costs across workers who have trade-induced occupation switches between two consecutive periods. Results suggest that occupation switch is very costly for all unskilled workers as well as for the skilled workers who are involved with the least-routine occupations. Notice that the effect of trade might not be gender-neutral. In the third paper, we complement the existing literature by providing evidence that increasing import exposure has differential effects on individual outcomes depending on the workers' gender and on the degree of routineness of their occupations. We explore the effects of gender-specific exposure to value-added trade on individual outcomes such as wages, the probability of being unemployed, and the likelihood of being married. Despite that the male-specific exposures to value-added trade are highly comparable to those female-specific measures, we find it is powerful enough to distinguish their differential effects across gender. We find that the effect of trade is symmetric across genders when it comes to wage effects but asymmetric in terms of the probability of being unemployed and in the likelihood of being married. Our findings on wages suggest that an increase in exposure to value-added imports has the most negative effect on intermediate-routine workers for both gender groups, which results in wage polarization for both groups. As for the probability of being unemployed, we find that the greater the male-specific exposure to value-added imports, the greater the chances of being unemployed for male workers in the intermediate-routine occupations, while the effects for other men are insignificant. In the case of female workers, rising import exposure is associated with an increase in the uncertainty related to unemployment for those in least-routine occupations. Finally, for the likelihood of getting married, the effect for female workers is insignificant regardless of the degree of routineness. In the case of men, the likelihood of getting married decreases for males in intermediate-routine occupations when exposure to imported final goods increases, while, on the other hand, males in least-routine occupations are more likely to get married with an increase in exposure to intermediate inputs.

This dissertation explores the economic interactions and outcomes in the nexus of international trade and finance. The entire dissertation is divided into three chapters with each chapter addresses one specific economic problem that roots in the interaction of international trade and finance. In the first chapter, I attempt to draw theoretical implications on two particular questions. First, what is the trade liberalization effect on capital market outcomes? Second, how do trade liberalization and capital market conditions jointly affect labor market outcomes such as income inequality? The objective of this chapter is to integrate both labor market frictions and capital market imperfection into one coherent theoretical framework and study the important interactions of trade liberalization and financial market development, as well as their joint impacts on aggregate income inequality. In the second chapter, I aim to provide both theoretical foundation and empirical evidence in partially explaining country authorities' decisions on financial policies. In the third chapter, [w]e provide a novel way of extracting country-level fundamental news from the international trade network. Specifically, we show that sovereign CDS returns provide value-relevant information that slowly propagates through credit markets reflecting underreaction on a global scale.