Enriching U.S. labor results in a multi-regional CGE model (original) (raw)
Trade and Skilled-Unskilled Wage Gap in a Model with Differentiated Goods
2002
There is a continuing debate about whether international trade is responsible for the observed skilled-unskilled wage gap. In this paper we present a general equilibrium trade model with differentiated goods. We begin with an analytical model and show how changes in relative factor returns can be decomposed into changes in commodity prices, changes in the trade balance, and changes in the factor endowment Then we use a computable general equilibrium (CGE) trade model calibrated to the U.S. economy in 1982 to analyze the effects of these shocks, as well as technology changes, observed in the U.S. in the 1980's.
The 45 region × 50 commodity × 5 primary factor version of the Global Trade Analysis Project's [GTAP] database provides us with the splits of total labor payments into skilled and unskilled labor-presupposing substitution possibilities between them. Given the skilled labor payment shares of the GTAP database, we offer an ex post rationalization within a production-theoretic framework. This relies on inter-regional covariation in the GTAP shares and in measures of educational attainment. Adoption of a suitable nesting of skilled-unskilled labor in GTAP's production function enables us to derive a 'reasonable' value for the (implicit) substitution elasticity between skilled-unskilled labors.
Disaggregating Labor Payments by Skill Level in GTAP
GTAP Technical Paper Series
This paper outlines an approach to disaggregating labor payments in the GTAP, global economic data base. The split between low- and high-skilled labor is based on occupational data. High-skilled labor is assumed to consist of managers, administrators, professionals, and para-professionals. Data are gathered on this occupational split, by sector, in fifteen different economies, and these are mapped to GTAP sectors. Regression analysis shows a systematic relationship between GDP per capita and the national stock of tertiary and secondary educated labor on the one hand, and the sectoral labor payments split on the other. This model is used to predict labor splits, by sector, in the remaining GTAP regions. The results are evaluated in terms of the implied economywide skilled -unskilled labor payment ratio. Overall, the results seem promising enough to warrant inclusion in the GTAP, version 4 data base.
Creating a Disaggregated CGE Model for Trade Policy Analysis: GTAP-MVH
Foreign Trade Review, 2020
Thousands of economists spread across almost every country use the GTAP model to analyse trade policies including trade wars and trade agreements. GTAP has an impressive regional coverage (140 countries), but the standard commodity coverage (57 commodities/industries) can cause frustration when tariffs on narrowly defined products are being negotiated. This article sets out a method for disaggregating commodities/industries in computable general equilibrium models such as GTAP and applies it to GTAP’s motor vehicle sector. The method makes use of readily available highly disaggregated trade data supplemented by detailed input–output data where available and data from a variety of other sources such as commercial market reports. JEL Codes: C68, F13, F14, F17
Economic Modelling, 2010
Computable General Equilibrium (CGE) models are now routinely utilized for the evaluation of trade policy reforms, yet they are typically quite highly aggregated, which limits their usefulness to trade negotiators who are often interested in impacts at the tariff line. On the other hand, Partial Equilibrium (PE) models, which are typically used for analysis at disaggregate levels, deprive the researcher of the benefits of an economy-wide analysis, which is required to examine the overall impact of broad-based trade policy reforms. Therefore, a PE-GE, nested modeling framework has the prospect of offering an ideal tool for trade policy analysis. In this paper, we develop a PE model that captures international trade, domestic consumption and output, using Constant Elasticity of Transformation (CET) and Constant Elasticity of Substitution (CES) structures, market clearing conditions and price linkages, nested within the standard GTAP Model. In particular, we extend the welfare decomposition of to this PE-GE model in order to contrast the sources of welfare gain in PE and GE analyses. To illustrate the usefulness of this model, we examine the contentious issue of tariff liberalization in the Indian auto sector, using PE, GE and PE-GE models. Both the PE and PE-GE models show that the imports of Motorcycles and Automobiles change drastically with both unilateral and bilateral tariff liberalization by India, but the PE model does a poor job predicting the overall size and price level in the industry, post-liberalization. On the other hand, the GE model overestimates substitution between regional suppliers due to "false competition" and underestimates the welfare gain, due to the problem of tariff averaging in the aggregated model. These findings are shown to be robust to wide variation in model parameters. We conclude that the linked model is superior to both the GE and PE counterparts. JEL Codes: C68, F13, F14, F17, O53.
Papers in Regional Science, 2007
We use a 500-industry CGE model of the U.S. to simulate the macro, industry and state effects of removing major U.S. tariffs and quotas. We find that this would generate a welfare gain of 0.07 per cent. For most industries, the output change would be negligible but for sugar, butter and several textile industries output contractions would be large. The state employment changes are all between -0.5 and 0.2 per cent. We explain the results by elementary mechanisms, in a way that does not require prior knowledge of the underlying CGE model. Liew, L.H. (1984), " 'Tops-down' versus 'bottoms-up' approaches to regional modeling,"
The Labour Market in CGE Models
Social Science Research Network, 2011
This chapter reviews options of labour market modelling in a CGE framework. On the labour supply side, two principal modelling options are distinguished and discussed: aggregated, representative households and microsimulation based on individual household data. On the labour demand side, we focus on the substitution possibilities between dierent types of labour in production. With respect to labour market coordination, we discuss several wage-forming mechanisms and involuntary unemployment.
Calibrating the Employment Effects of Trade
Review of International Economics, 1998
The one-sector model of monopolistic competition and intraindustry trade is merged with the Shapiro-Stiglitz model of efficiency wages to show that introducing trade increases employment in both countries. The intuition is that even when employment is held constant, trade improves worker welfare via increased variety of available goods. The increase in worker welfare relaxes the efficiency wage constraint, permitting an increase in employment. The increase in employment magnifies the benefits of trade. The model is calibrated to US data to estimate the employment effects of eliminating all trade and eliminating trade with Mexico and Canada.
Skilled-Unskilled Wage Inequality and Urban Unemployment
Economic Inquiry, 2010
The impact of trade liberalization on the labor market in the North has drawn tremendous attention in the face of the growing skilled-unskilled wage gap but in the South it has been somewhat neglected. One of the key structural differences between the North and the South is that the South experiences a pronounced rural-urban migration in the presence of urban unemployment. We introduce this feature in the structure of a simple general equilibrium model to analyze the effects of trade liberalization and fragmentation on employment and the skilled-unskilled wage differential in the South. In particular, we show that while fragmentation necessarily improves the unskilled wage and the skilled wage, more lucrative global opportunities for the skilled final product, in the absence of fragmentation, can reduce the rural wage and increase urban unemployment. The effect of fragmentation, ceteris paribus, on the skilled-unskilled wage gap is sensitive to the degree of substitutability between land and unskilled labor. As such, fragmentation can magnify the increase in the skilled-unskilled wage gap resulting from an improvement in the terms of trade. It is also shown that a technological progress in the intermediate goods sector increases the skilled-unskilled wage gap and raises urban unemployment. (JEL F1, O1, F11, F12) *We wish to thank anonymous referee(s) for insightful comments and suggestions on an earlier version of this paper. The usual disclaimer applies.
The Choice of Structural Model in Trade and Wage Decompositions
1999
This paper explores the use of structural models as an alternative to reduced form methods when decomposing observed joint trade and technology driven wage changes into components attributable to each source. Conventional mobile factors Heckscher-Ohlin models typically reveal problems of specialisation unless price changes accompanying trade shocks are small, and can also produce wide ranges for the decomposition for parameterisations consistent with the joint change. A differentiated goods model which generalises Heckscher-Ohlin removes problems of specialisation and concentrates the range of decompositions more narrowly, but introduces larger demand side responses to trade shocks which greatly reduce the effect of trade. The conclusion offered is that the choice of structural model matters for decomposing observed wage changes into trade and technology components, and that reduced-form methods which do not discriminate between alternative structural models may not be that informat...
The Choice of Structural Model in Trade-Wages Decompositions
SSRN Electronic Journal, 1999
This paper explores the use of structural models as an alternative to reduced form methods when decomposing observed joint trade and technology driven wage changes into components attributable to each source. Conventional mobile factors Heckscher-Ohlin models reveal problems of specialisation unless price changes accompanying trade shocks are small, and also produce wide ranges for the decomposition for parameterisations consistent with the joint change. A differentiated goods model which generalises Heckscher-Ohlin removes problems of specialisation and concentrates the range of decompositions more narrowly, but introduces larger demand side responses to trade shocks which greatly reduce the effect of trade. The conclusion offered is that the choice of structural model matters for decomposing observed wage changes into trade and technology components, and that reduced-form methods which do not discriminate between alternative structural models may not * This paper forms part of a project on Globalisation and Social Exclusion supported by the Targeted Socio Economic Research programme of the European Union. We are grateful to Bob Anderton, Paul Brenton, Matthias Luecke, and Ken Wallis for helpful comments on an earlier draft.
The Impacts of Trade on the Brazilian Labor Market: A CGE Model Approach
SSRN Electronic Journal, 2000
The paper assesses the impacts of trade liberalization on macroeconomic variables and labor market indicators in Brazil. The discussion comes out of an earlier debate on the role of trade liberalization in shaping labor market outcomes in the well-known Heckscher-Ohlin and Stolper-Samuelson (HOS) theorems. To address these issues, we use a computable general equilibrium (CGE) modeling approach to model the patterns of export growth by sector and their effects on macroeconomic and labor market indicators. Overall our results show that trade liberalization contributes to improve economic welfare by means of greater output, lower domestic prices, and higher labor demand. The benefits of this economic improvement tend however, to be appropriated by the most skilled workers in the most trade-oriented sectors, contradicting the predictions of the HOS theorems.
Journal of Regional Science, 2009
Using county-level data from the 1980s and 1990s and a county-level trade measure that incorporates the county's industrial mix and patterns of international trade across industries, I provide new evidence that trade with developing countries raises the demand for skill and the skill premium in the U.S. Consistent with Heckscher-Ohlin, I find that trade driven by differences in factor endowments has an economically significant impact on local labor markets. The evidence suggests that when trade with developing countries rises, counties with higher skill endowment and greater employment in industries with larger trade shares experience greater relative demand for high-skilled labor.
Building a better trade model to determine local effects: A regional and intertemporal GTAP model
Intertemporal CGE models allow agents to respond fully to current and future policy shocks. This property is particularly important for trade policies, where tariff reductions span over decades. Nevertheless, intertemporal CGE models are dimensionally large and computationally difficult to solve, thus hindering their development, save for those that are scaled-down to only a few regions and commodities. Using a recently developed solution method, we address this problem by building an intertemporal version of a GTAP model that is large in dimension and can be easily scaled to focus to any subset of GTAP countries or regions, without the need for 'second best' recursive approaches. Specifically, we solve using a new parallel-processing technique and matrix reordering procedure, and employ a non-steady state baseline scenario. This provides an effective tool for the dynamic analysis of trade policies. As an application of the model, we simulate a free trade scenario for Vietnam with a focus on the recent Trans-Pacific Partnership (TPP). Our simulation shows that Vietnam gains considerably from the TPP, with 60 of the gains realised within the first 10 years despite our assumption of a gradual and linear removal of trade barriers. We also solve for intertemporal and sector-specific effects on each industry in Vietnam from the trade agreements, showing an added advantage of our approach compared to standard static and recursive GTAP models.
Trade and labor market outcomes
2011
ABSTRACT This paper reviews a new framework for analyzing the interrelationship between inequality, unemployment, labor market frictions, and foreign trade. This framework emphasizes firm heterogeneity and search and matching frictions in labor markets. It implies that the opening of trade may raise inequality and unemployment, but always raises welfare. Unilateral reductions in labor market frictions increase a country's welfare, can raise or reduce its unemployment rate, yet always hurt the country's trade partner.
Trade Reform and Labor Market Dynamics
Clinical and Experimental Hypertension - CLIN EXP HYPERTENSION, 1999
We present an equilibrium-search model with heterogenous workers who search for a job in one of two sectors and who lose part of their skills during unemployment. We show that an import tariff increase the wage and the employment prospects in the protected sector. This results in a labor market distortion because it changes the comparative advantage of the least specialised workers. Trade reform results in sectoral reallocation of workers which affects employment in both sectors through quantity and quality effects and increases unemployment persistently. Replacing the tariff by a wage-cost subsidy financed by means of lump-sum taxation prevents unemployment from rising after trade has been reformed. However, giving a wage- cost subsidy to both sectors is cheaper since then comparative advantage of workers will no longer be distorted, although unemployment will temporarily rise.
Impacts of Trade on Wage Inequality in Los Angeles: Analysis Using Matched Employer–Employee Data
Annals of the Association of American Geographers, 2008
Over the past twenty-five years, earnings inequality has risen dramatically in the US, reversing trends of the preceding half-century. Growing inequality is closely tied to globalization and trade through the arguments of Heckscher-Ohlin. However, with few exceptions, empirical studies fail to show that trade is the primary determinant of shifts in relative wages. We argue that lack of empirical support for the trade-inequality connection results from the use of poor proxies for worker skill and the failure to control for other worker characteristics and plant characteristics that impact wages. We remedy these problems by developing a matched employee-employer database linking the Decennial Household Census (individual worker records) and the Longitudinal Research Database (individual manufacturing establishment records) for the Los Angeles CMSA in 1990 and 2000. Our results show that trade has a significant impact on wage inequality, pushing down the wages of the less-skilled while allowing more highly skilled workers to benefit from exports. That impact has increased through the 1990s, swamping the influence of skill-biased technical change in 2000. Further, the negative effect of trade on the wages of the less-skilled has moved up the skill distribution over time. This suggests that over the long-run, increasing levels of education may not insulate more skilled workers within developed economies from the impacts of trade.