Working Paper: NBER ID: w13686
Authors: Jan Eeckhout; Boyan Jovanovic
Abstract: The rise in world trade since 1970 has raised international mobility of labor services. We study the effect of such a globalization of the world's labor markets. We find that when people can choose between wage work and managerial work, the output gains are U-shaped: A worldwide labor market raises output by more in the rich and the poor countries, and by less in the middle-income countries. This is because the middle-income countries experience the smallest change in the factor-price ratio, and where the option to choose between wage work and managerial work has the least value in the integrated economy. Our theory also establishes that after economic integration, the high skill countries see a disproportionate increase in managerial occupations. Using aggregate data on GDP, openness and occupations from 115 countries, we find evidence for these patterns of occupational choice.
Keywords: occupational choice; development; globalization; labor markets; managerial occupations
JEL Codes: L00; O10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Integration of labor markets (F16) | U-shaped pattern of output gains (E23) |
| U-shaped pattern of output gains (E23) | High GDP economies benefit more than middle-income economies (F62) |
| Access to cheap labor (F66) | Enhanced productivity and comparative advantage of high-skill managers (D29) |
| Occupational switching effect (J62) | Additional output gains (E23) |
| Higher-skilled agents moving into managerial roles (J62) | Increased overall efficiency (D61) |
| High-skill economies (J24) | Disproportionate increase in managerial occupations (J29) |
| Openness (O36) | Managerial job growth in high-income countries (O57) |