Working Paper: CEPR ID: DP8430
Authors: Marius Brülhart; Cline Carrère; Federico Trionfetti
Abstract: We study the response of regional employment and nominal wages to trade liberalization, exploiting the natural experiment provided by the opening of Central and Eastern European markets after the fall of the Iron Curtain in 1990. Using data for Austrian municipalities, we examine differential pre- and post-1990 wage and employment growth rates between regions bordering the formerly communist economies and interior regions. If the 'border regions' are defined narrowly, within a band of less than 50 kilometers, we can identify statistically significant liberalization effects on both employment and wages. While wages responded earlier than employment, the employment effect over the entire adjustment period is estimated to be around three times as large as the wage effect. The implied slope of the regional labor supply curve can be replicated in an economic geography model that features obstacles to labor migration due to immobile housing and to heterogeneous locational preferences.
Keywords: natural experiment; regional labor supply; spatial adjustment; trade liberalization
JEL Codes: F15; R11; R12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increased market access due to the fall of the Iron Curtain (F69) | Higher nominal wages in border regions (J39) |
| Increased market access due to the fall of the Iron Curtain (F69) | Higher employment in border regions (J68) |
| Higher nominal wages in border regions (J39) | Higher employment in border regions (J68) |
| Trade liberalization (F13) | Increased nominal wages in border regions (J39) |
| Trade liberalization (F13) | Increased employment in border regions (J68) |