Resumen de Essays on international trade and the labor markets
ALESSANDRO RUGGIERI ROBERTO MERLI
Over the past 40 years, globalization forces took momentum. Several developing and advanced economies have embarked on programs of trade liberalization, dismantling trade barriers, and lowering tariffs on imports and exports. Trade flows have significantly expanded, increasing the import penetration of intermediate inputs and final goods, and exposing countries to ``foreign competition". Furthermore, improvements in the communication technologies have facilitated the unpacking of production into ``offshorable tasks", making producers around the world rely constantly more on trade and global supply chain. As a result, the volume of world-wide cross-border transactions has grown significantly faster than the production of goods and services.
The wide-ranging effects of cross-border trade on welfare are complex and politically debated. Despite the well-known aggregate gains from trade, globalization has been identified as one of the main sources of disruption in the labor markets. Furthermore, while it is only one of many possible forces affecting labor markets, it is much more at the center of the political debate and the public opinion than any other. Like much technological advance, globalization benefits society as a whole, while harming certain groups of people. Understanding the relative costs and benefits of product market integration can help to alleviate the burden and sustain the aggregate payoffs.
In this essay, I study the effect of globalization and trade reforms on labor market performance, inequality, and welfare. To this extent, I focus on understanding (i) how globalization forces induce changes in the distribution of earnings and income across workers, (ii) how frictions and regulations in the labor market determine how unemployment and sectoral employment adjust in response to a trade shock, and (iii) how foreign market exposure affects workers' human capital accumulation and shapes their life-time earning trajectories.
In the first chapter of this essay, titled ``Trade and Labor Market Institutions: A Tale of Two Liberalizations", I study how labor market institutions at the time of a trade reform determine the post-reform dynamics of unemployment and inequality. To do so, I build a model of international trade, featuring heterogeneous firms, endogenous industry dynamics, and search and matching frictions in the labor market. To unveil the role of labor market institutions, I employ a rich institutional framework which includes employment protection legislation, statutory minimum wage, and unemployment insurance. I estimate the model to match the pre-liberalization firm dynamics in Colombia and Mexico, two countries that differed significantly by the labor regulations in place at the time of trade liberalization. I push the state-of-art in the literature that almost exclusively focuses on steady state comparison and I characterize numerically the full transition path towards the new steady state. I find that up to 46 percent of the average response in unemployment induced by a trade reform can be attributed to the regulations in place at the time of the reform. I show that labor market institutions are key determinants of how labor markets react to trade reforms: the response is stronger and more persistent when the firing costs are lower and the statutory minimum wage and unemployment benefits are larger. I also demonstrate that labor market institutions generate a trade-off between larger, but more unequally-distributed, income gains versus lower, but more equally-distributed, income gains.
In the second chapter of this essay, titled ``Training, Offshoring and the Job Ladder" and jointly written with Nezih Guner and James Tybout, we study the effect of offshoring and import competition on workers' careers, employment reallocation and earning trajectories. Using US worker-level survey data we first document that in the last 30 years: 1) job-to-job transitions have declined on average, particularly within low-skill and low-paid occupations; 2) transitions out of employment have increased on average, particularly from employers in low-skill and low-paid occupations; 3) provision of on-the-job training has declined in low-skill, low-paid occupations and increased in high-skill, high-paid occupations; 4) the earnings gap between trained and untrained workers has grown; 5) the wage life-cycle profiles for jobs in occupations more exposed to globalization have flattened relative to others. To interpret these facts, we develop an open-economy search model, where heterogeneous workers engage in on-the-job training and climb the job ladder. In this framework, globalization destroys low-skill jobs in the trade-exposed occupations - thereby changing incentives to invest in college degrees and on-the-job training - while improving the relative demand for high-skill occupations. We find that changes in relative demand for low- versus high-skill occupations induced by a reduction in trade barriers can potentially explain the stylized facts that we document.
In the third chapter of this essay, titled ``The Price of Globalizations" and coauthored with Nezih Guner and James Tybout, we quantify the welfare gains from trade in a framework where trade openness and un-insurable idiosyncratic unemployment risks are intimately related. We build upon a list of reduced-form evidence linking import penetration to fall in employment, longer unemployment duration, and earning loss, and we propose a structural interpretation. We build a model of international trade, featuring endogenous firm dynamics, search and matching frictions in the labor market and asset accumulation. In this framework, the probability of remaining unemployed for many periods depends on the probability of not finding a job between one period and the next, so variation in transition rates spreads out the unconditional distribution of unemployment spell lengths. Precautionary saving helps insuring individuals against short unemployment spells. But if the economy opens up to trade, then the unconditional probability of occasionally suffering an exceptionally long unemployment spell, long enough to run out of savings, is substantially increased. This happens because trade exposure induces variation in firm hiring policies, thus increasing the riskiness of labor income by changing the persistence of unemployment spells. Calibrated to the US economy, the model generates non-monotonic aggregate welfare gains from trade: while positive gains are realized as the economy moves out of autarky, welfare drops as trade costs decline further.
