Working Paper: CEPR ID: DP6056
Authors: Guy Michaels
Abstract: Since changes in trade openness are typically confounded with other factors, it has been difficult to identify the labour market consequences of increased international trade. The advent of the United States Interstate Highway System provides a unique policy experiment, which I use to identify the effect of reducing trade barriers on the relative demand for skilled labour. The Interstate Highway System was designed to connect major metropolitan areas, to serve national defence and to connect the United States to Canada and Mexico. As a consequence - though not an objective - many rural counties were also connected to the highway system. I find that these counties experienced an increase in trade-related activities, such as trucking and retail sales, by 7-10 percentage points per capita. Most significantly, by increasing trade the highways raised the relative demand for skilled manufacturing workers in counties with a high endowment of human capital and reduced it elsewhere, consistent with the predictions of the Heckscher-Ohlin model.
Keywords: highways; skill premium; trade
JEL Codes: F16; J23; J31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Construction of highways (R42) | Increase in trade-related activities (F19) |
| Increase in trade-related activities (F19) | Increase in demand for skilled manufacturing workers in high human capital counties (J24) |
| Increase in trade-related activities (F19) | Decrease in demand for skilled manufacturing workers in low human capital counties (F66) |
| Construction of highways (R42) | Increase in wage bill of high-skilled workers in skill-abundant counties (J39) |
| Increase in wage bill of high-skilled workers in skill-abundant counties (J39) | Increase in labor market inequality (F66) |
| Highways (R48) | No significant shift in employment towards skill-intensive manufacturing industries (L69) |