Linnea Lorentzen

Research:

The Unequal Effects of Trade and Automation across Local Labor Markets, with Simon Galle
Journal of International Economics (Forthcoming, 2024)
Online Appendix, Replication Package

We quantify the joint impact of the China shock and automation of labor, across US commuting zones (CZs) in the period 2000-2007. To this end, we employ a multi-sector gravity model of trade with Roy-Fréchet worker heterogeneity across sectors, where labor input can be automated. Automation and increased import competition from China are both sector-specific; they lead to contractions in a sector's labor demand and a decline in relative income for CZs more specialized in that sector, amplified by a voluntary reduction in hours worked and an increase in frictional unemployment. The estimated model fits well with the aggregate performance of manufacturing subsectors and with the variation across CZs in changes in average income, the hourly wage, hours worked, the employment rate and employment in manufacturing. By itself, the China shock has stronger distributional effects than automation, but its impact on aggregate gains is less than a third of automation's impact.

Domino Effects: Understanding Sectoral Reallocation and its Wage Implications
Awarded the prize for the Best Paper at the 21st Annual GEP/CEPR Postgraduate Conference 

How do sector-specific shocks induce workers to move between sectors, and what is the impact on the distribution of earnings? While we know that sector-specific shocks affect workers in directly exposed sectors, less is known about the equilibrium effects on indirectly exposed workers. This paper studies how shocks hitting one sector can, mediated through sectoral reallocation, impact workers across sectors. Specifically, I study the sectoral reallocation in Norway, driven by the collapse in the price of Brent Crude Oil in 2014. The data shows the worker reallocation to be asymmetric; the oil workers moved into certain destination sectors in particular. By exploiting variation in into which sectors oil workers had been moving pre-shock, I provide novel empirical evidence on how workers in sectors more exposed to worker inflows experienced a relative reduction in earnings growth and an increased probability of leaving their sector. To quantify the equilibrium effects, I employ a Roy model of sectoral reallocation where sectoral skills are distributed log-normally and correlated across sectors. I calibrate the skill correlations by targeting the sectoral reallocation observed in the data. The model simulates the counterfactual reallocation driven by the shock in isolation and quantifies the magnitude of the equilibrium effects. The quantitative results show that, on average, across local non-tradable sectors, the shock is associated with a real wage decline of 12% of the oil sector real wage decline, with a maximum of 70%.