Working Paper: CEPR ID: DP17141
Authors: Andres Rodriguez-Clare; Mauricio Ulate; Jose Vasquez
Abstract: We present a dynamic quantitative trade and migration model that incorporates downward nominal wage rigidities and show how this framework can generate changes in unemployment and labor participation that match those uncovered by the empirical literature studying the ``China shock.'' We find that the China shock leads to average welfare increases in most U.S. states, including many that experience unemployment during the transition. However, nominal rigidities reduce the overall U.S. gains by around one fourth. In addition, there are seven states that experience welfare losses in the presence of downward nominal wage rigidity that would have experienced gains without it.
Keywords: trade; china shock; unemployment; nominal rigidities
JEL Codes: F10; F16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| China shock (F69) | average welfare increases (D69) |
| China shock (F69) | employment (J68) |
| DNWR (Q26) | employment (J68) |
| DNWR (Q26) | average welfare losses in eight states (D69) |
| China shock (F69) | terms of trade (F14) |
| terms of trade (F14) | average welfare increases (D69) |