Job Market Paper

  • "Offshoring, Firm-Level Adjustment and Labor Market Outcomes." [Latest Version]

Abstract: This paper contributes to the China shock debate. It studies the dynamic effects of offshoring cost reduction on the unemployment rates and wage inequality across the high-skilled and low-skilled workers through the dynamics of firms’ production location and entry decisions in general equilibrium. First, I examine the dynamic effects of offshoring cost reduction due to China's trade liberalization. Estimates from vector autoregressions (VARs) show that offshoring cost reduction is associated with a short-lived increase in low-skilled unemployment, but a persistent decline in high-skilled unemployment and a less persistent expansion of wage gap. Second, I build a two-country trade-in-task model with firm heterogeneity, endogenous selection into entry and offshoring as well as search and matching unemployment to study the channels through which offshoring cost reductions affect the labor market outcomes for different skill groups over time. The model successfully reproduces the VAR evidence and highlights the importance of endogenous firm entry and labor market frictions in generating the empirical dynamic responses of wage and unemployment across different skill groups.

Working Papers

  • "Comparative Advantage, Multinational Firms' Sourcing Decisions and Wage Inequality."

Abstract: This paper studies how wage inequality between skilled and unskilled workers interact with multinational firms’ decisions and countries’ different factor endowments using a dynamic stochastic model featuring task-offshoring, heterogeneous firms and factor proportions. It points out that besides the traditional Stolper-Samuelson mechanism that shifts factors of production towards a country’s comparative advantage sectors, there also exist other firm-level adjustment mechanisms that widen the wage gap after trade liberalization. While the heterogeneous firm trade literature suggests that trade liberalization increases the skill premium through shifting resources to more productive firms which are skill-biased, this paper generates a lowering of domestic low-skilled wage both along the extensive margin and the intensive margin in response to a decline in trade cost with the task offshoring structure.

Work in Progress:

  • "When the Doors Open: Chinese Local Labor Markets' Response to Trade Liberalization."

Abstract: China’s profound trade liberalization has been linked with large employment changes around the world. However, the study of Chinese labor market responses to trade liberalization is a relatively less explored topic. Using data from CHIP (Chinese Household Income Project), this paper aims to fill this gap by estimating the effects of trade liberalization on Chinese local labor markets, accounting for differences across regions’ openness and trade volumes. I estimate the differential impact of trade liberalization policies on states that are more open to international trade and states that are less exposed. In addition, I investigate the labor market changes in urban and rural areas separately with the availability of surveys conducted in urban and rural households. In the model, I use a dynamic general equilibrium framework with heterogeneous firms, heterogeneous workers and endogenous firm entry to study the impact of trade liberalization on Chinese local labor market. Furthermore, I focus on the role of labor mobility that characterizes the large rural-to-urban migration in the midst of trade liberalization in shaping China's labor market outcomes in the short run.