Trade Liberalization: Winners and Losers in a Search Framework (Job Market Paper)
Latest version (December 2019), Latest Slides (October 2019)
Abstract: I study how the gains and losses from trade are distributed across young and old workers. Following China's accession to the WTO, I find that import-exposed US manufacturing workers' lifetime income losses resemble a `U-shape' with younger workers having larger losses than older ones. To interpret this evidence, I build an overlapping generations model with search and matching frictions. My model sheds light on a new mechanism that yields relatively larger income losses for young workers. Since wages in this setting are related to a worker's outside option, trade liberalization influences incomes in two ways: directly, by reducing the value of the worker's output; and indirectly, by weakening the outside option as all future wages will now be lower. This outside option is key to matching the `U-shape' found in the data. To quantify these effects, I calibrate the model to match key features of the US economy and find that reducing trade costs results in significant dispersion of gains and losses: workers in the import exposed sector suffer losses ranging from 2.5% for older workers to 5% for younger workers, while workers in other sectors see gains ranging from 0.5% to 1% across age groups.
Migration, Remittances and Brexit: European labor market integration and its effects on Inequality and Convergence (with Laszlo Tetenyi)
Latest version (June 2019), Latest Slides (May 2019)
Abstract: The increase in migration from Eastern to Western Europe after the European Union (EU) expansion in 2004, resulted in a large increase in remittances to New Member States (NMS), comparable in size to FDI or EU transfers. We evaluate the joint impact of remittances and migration on the integration of EU economies and their implications for welfare and inequality within and across countries. Labor market integration affects labor supply directly through migration, and labor demand indirectly through remittances that alter the capital stock. We develop an incomplete asset markets model with migration and portfolio choice, where agents can either save in an asset related to their citizenship or in a global bond. We find that including both the remittance and migration channels led to greater economic convergence between EU countries, driven primarily by growth in NMS. Thus, despite weak trade ties, NMS may experience significant welfare losses if labor market integration is reversed (a hard-Brexit scenario). Opening to immigration has heterogeneous effects on locals, with increasing wealth inequality driven by richer households disproportionately benefiting from increased labor supply.
Research in Progress
- Skill Development Programs for the Unemployed and Monetary Policy (Latest version June 2017): Training programs can be seen as a long-run consumption smoothing tool for workers. When interest rates are low, investing in training can smooth consumption better than low yielding bonds since future wages will increase due to the increased skill accumulation.
- Further Higher Education: Signalling and Skill Development (Latest version May 2017): Pursuing further education both increases skills and sends a signal to employers. This paper analyzes the trade-off between these two effects and the cost of acquiring education, resulting in interesting dynamics whereby the least skilled and most skilled choose not to acquire further education.
- Soft and Tough Market Participants (Latest version June 2016): Following Farboodi et al. (2016), I develop a partial equilibrium model where agents differ on bargaining power, but also an exogenous state that forces the agent to either sell or buy the asset (e.g. losing a job, bankruptcy etc.). In such a world, the allocation of assets is not always optimal.