Trade, Jobs, and Worker Welfare

Abstract

This paper examines the welfare effects of international trade on workers in a new dynamic general equilibrium discrete choice model of labor mobility, where the workers’ choice set of jobs is endogenous. The analysis exploits differential exposure of sectors and regions to destination-specific demand shocks to estimate the impacts of exports on wages, employment, and labor mobility, using employer-employee panel data for Brazil. It then employs the same empirical strategy to estimate structural parameters and the different components of changes in model-implied worker welfare. Counterfactual simulations show that the endogenous number of job options significantly magnifies the welfare effects of trade shocks.