Trade Liberalization and Intersectoral Labor Mobility

This dissertation focuses on the intersectoral reallocation of labor in the process of structural transformation and documents that transitions between sectors are costly and vary widely across workers. The first chapter studies the effect of trade liberalization and dynamic labor adjustment on gender differences in wages and welfare. The second chapter examines the interaction between population aging and the process of structural change. The first chapter analyzes the impact of import competition and dynamic labor adjustment on gender outcomes in wages and welfare in the U.S.. It first provides empirical evidence on the relationship between increasing import competition and narrowing gender wage gap. The identification strategy exploits geographic variation in the exposure of the U.S. manufacturing sector to imports from China. I then consider a dynamic model of sectoral choice to identify the mechanisms driving the relationship between import competition and gender inequality in wages and welfare. The model delivers a structural relationship between intersectoral worker flows, mobility costs, and wage differentials, akin to a gravity equation. I construct a measure of distance in task characteristics between sectors and structurally estimate the mobility costs using data from the March Current Population Survey and O*NET. The results indicate that an import competition shock to the U.S. manufacturing sector disproportionately impacts male employment and wages for two main reasons. First, the manufacturing sector predominantly employs male labor. Second, men face higher costs of exiting from the manufacturing sector into services. Simulation results are consistent with the reduced–form evidence that import competition from China was responsible for about 11 percent of a decline in the U.S. gender wage gap between 1990 and 2007. The resulting welfare gains from trade liberalization are more than 30 percent higher for women. In a set of counterfactual simulations, I show that about 80 percent of the gap in welfare gains are explained by men\u27s higher costs of switching out of the manufacturing sector. These results demonstrate that the relative welfare effects depend on the magnitude of the costs that workers face when moving between sectors. The second chapter – joint work with James Lake (Southern Methodist University) and Michael Sposi (Federal Reserve Bank of Dallas) – investigates an interaction between structural transformation and age structure of the U.S. labor force. We first study how population aging in the U.S. coupled with differential mobility rates over the life cycle affect the speed of structural change since the 1970s. Then, taking the process of structural transformation as given, we investigate the effect of intersectoral labor reallocation on life–cycle earnings profiles. Using the monthly Current Population Survey, we document two adjustment margins along which workers respond to the rising value of the service sector relative to the goods sector. The first margin – increasing the likelihood ratio of entering services relative to goods – is similar for workers of all ages. The second margin – transitions in and out of employment – varies by age. We find that, between 1976 and 2014, individuals younger than 30 have become more likely to postpone their entry into the labor force while workers older than 50 delay their entry into retirement. We conclude that age heterogeneity along these adjustment margins is not sufficient for population aging to have a significant impact on the speed of structural transformation. However, we show that transitions from goods to service sector earlier in the life cycle are associated with flatter life–cycle earnings profiles relative to older switchers and those who remain employed in the goods sector