NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Trade Induced Structural Change and the Skill Premium

Javier Cravino, Sebastian Sotelo

NBER Working Paper No. 23503
Issued in June 2017
NBER Program(s):International Finance and Macroeconomics, International Trade and Investment, Labor Studies

We 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. We document that manufacturing production is unskilled-labor intensive, so that these changes increase the skill-premium. We incorporate this mechanism in a quantitative trade model and show that trade has had a negative impact on manufacturing employment and the relative wage of unskilled workers. The impact on the skill premium was larger in developing countries where manufacturing is particularly unskilled-labor intensive.

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Document Object Identifier (DOI): 10.3386/w23503

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