New-Keynesian Trade: Understanding the Employment and Welfare Effects of Trade Shocks

Rodrı́guez-Clare, Andrés; Ulate, Mauricio; Vasquez, Jose P.

doi:10.2139/ssrn.3705115

Cited by 11 publications

(11 citation statements)

References 28 publications

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“…In particular, aggregate gains from trade in the form of lower consumer prices (which we study in Section 5) cannot be identified from a comparison of local labour markets when price changes are uniform across space. Several recent papers thus use reduced-form empirical results to calibrate quantitative trade models that estimate the welfare effects of Chinese imports across local labour markets in the US (Caliendo, Dvorkin and Parro, 2019;Rodríguez-Clare, Ulate and Vásquez, 2019;Adao, Arkolakis and Esposito, 2020;Galle, Rodríguez-Clare and Yi, 2020). Using different theoretical assumptions on the nature and extent of spatial mobility frictions, most of these papers estimate that the average welfare gain of US residents due to Chinese imports was of the order of 0.2-0.3 percentage points.…”

Section: The Impact Of Import Competition On Firms and Workersmentioning

confidence: 99%

Trade and Inequality in Europe and the Us

Dorn

Levell

2022

SSRN Journal

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Section: The Impact Of Import Competition On Firms and Workersmentioning

confidence: 99%

Trade and Inequality in Europe and the Us

Dorn

Levell

2022

SSRN Journal

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“…On the other end, Carrère et al (2020) and Guner et al (2020) incorporate search frictions and unemployment into multi-sector extensions of Eaton and Kortum (2002), but do not study out-of-steady-state dynamics. In a recent exception, Rodriguez-Clare et al (2020) incorporates wage rigidity into the model of Caliendo et al (2019) to investigate the unemployment effects of the China Shock on local labor markets in the United…”

Section: Introductionmentioning

confidence: 99%

Globalization, Trade Imbalances, and Labor Market Adjustment

Dix-Carneiro

Pessoa²,

Reyes-Heroles

et al. 2023

The Quarterly Journal of Economics

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We argue that modeling trade imbalances is crucial to understanding transitional dynamics in response to globalization shocks. We build and estimate a general equilibrium, multicountry, multisector model of trade with two key ingredients: (a) endogenous trade imbalances arising from households’ consumption and saving decisions; (b) labor market frictions across and within sectors. We use our model to perform several empirical exercises. We find that the “China shock” accounted for 28% of the decline in US manufacturing between 2000 and 2014—1.65 times the magnitude predicted from a model imposing balanced trade. A concurrent rise in US service employment led to a negligible aggregate unemployment response. We then benchmark our model’s predictions for the gains from trade against the popular “ACR” sufficient statistics approach. We find that our predictions for the long-run gains from trade and consumption dynamics significantly diverge.

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“…Our paper also relates to the vast literature that studies the impacts of trade on local labor markets using quantitative trade models. Most recent papers have focused on the effects of the rise of China's prevalence in international trade, also known as the "China Shock" (Rodriguez-Clare et al, 2022;Galle et al, 2020;Caliendo et al, 2019;Adao et al, 2020), but other quantitative papers also examine migration shocks (Caliendo et al, 2021(Caliendo et al, , 2022 or automation (Galle and Lorentzen, 2022). 5 Among these papers, RUV is the closest to our work.…”

Section: Introductionmentioning

confidence: 99%

Labor Market Effects of Global Supply Chain Disruptions

Ulate¹,

Vasquez²,

Zarate³

2023

ERWP

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We examine the labor market consequences of recent global supply chain disruptions induced by COVID-19. Specifically, we consider a temporary increase in international trade costs similar to the one observed during the pandemic and analyze its effects on labor market outcomes using a quantitative trade model with downward nominal wage rigidities. Even omitting any health related impacts of the pandemic, the increase in trade costs leads to a temporary but prolonged decline in U.S. labor force participation. However, there is a temporary increase in manufacturing employment as the United States is a net importer of manufactured goods, which become costlier to obtain from abroad. By contrast, service and agricultural employment experience temporary declines. Nominal frictions lead to temporary unemployment when the shock dissipates, but this depends on the degree of monetary accommodation. Overall, the shock results in a 0.14% welfare loss for the United States. The impact on labor force participation and welfare across countries varies depending on the initial degree of openness and sectoral deficits.

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New-Keynesian Trade: Understanding the Employment and Welfare Effects of Trade Shocks

Cited by 11 publications

References 28 publications

Trade and Inequality in Europe and the Us

Trade and Inequality in Europe and the Us

Globalization, Trade Imbalances, and Labor Market Adjustment

Labor Market Effects of Global Supply Chain Disruptions

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