Globalization, trade imbalances, and labor market adjustment

Arbeitspapier

We study the role of global trade imbalances in shaping the adjustment dynamics in response to trade shocks. We build and estimate a general equilibrium, multicountry, multisector model of trade with two key ingredients: 1) consumption-saving decisions in each country commanded by representative households, leading to endogenous trade imbalances, and 2) labor market frictions across and within sectors, leading to unemployment dynamics and sluggish transitions to shocks. We use the estimated model to study the behavior of labor markets in response to globalization shocks, including shocks to technology, trade costs, and intertemporal preferences (savings gluts). We find that modeling trade imbalances changes both qualitatively and quantitatively the short- and long-run implications of globalization shocks for labor reallocation and unemployment dynamics. In a series of empirical applications, we study the labor market effects of shocks accrued to the global economy, their implications for the gains from trade, and we revisit the "China Shock" through the lens of our model. We show that the U.S. enjoys a 2.2 percent gain in response to globalization shocks. These gains would have been 73 percent larger in the absence of the global savings glut, but they would have been 40 percent smaller in a balanced-trade world.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Upjohn Institute Working Paper ; No. 21-345

Classification and Topics

• Classification: Wirtschaft ; Trade and Labor Market Interactions
• Subject: Globalization ; Trade Imbalances ; Labor Markets ; Unemployment

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Carneiro, Rafael Dix ; Pessoa, João Paulo ; Reyes-Heroles, Ricardo ; Traiberman, Sharon
• Event: Veröffentlichung
• (who): W.E. Upjohn Institute for Employment Research
• (where): Kalamazoo, MI
• (when): 2021

Further information

• DOI: doi:10.17848/wp21-345
• Handle: http://hdl.handle.net/10419/246059
• Last update: 10.03.2025, 11:44 AM CET