Eunhee Lee (University of Maryland)

Abstract:

We study welfare effects of trade on workers across different regions and sectors by introducing a new dynamic discrete choice model of labor mobility with endogenous number of choices. In our general equilibrium model, trade shocks impact worker welfare not only through wages, but also via the number of job opportunities available to workers in different labor markets. First, we exploit differential exposure of sectors and regions to destination-specific demand shocks to estimate the impacts of export shocks on wages, employment and labor mobility, using detailed employer-employee panel data for Brazil. Second, we employ the same empirical strategy to estimate structural parameters and the different components of the change in model-implied worker welfare. Third, we use our model and the estimated structural parameters to perform counterfactual policy simulations. The structural IV estimates reveal that the job opportunities channel that we introduce accounts for a sizable share of the losses in worker lifetime welfare following a negative shock to exports.