Working Paper: NBER ID: w19339
Authors: Timothy J. Kehoe; Kim J. Ruhl; Joseph B. Steinberg
Abstract: Since the early 1990s, as the United States borrowed heavily from the rest of the world, employment in the U.S. goods-producing sector has fallen. We construct a dynamic general equilibrium model with several mechanisms that could generate declining goods-sector employment: foreign borrowing, nonhomothetic preferences, and differential productivity growth across sectors. We find that only 15.1 percent of the decline in goods-sector employment from 1992 to 2012 stems from U.S. trade deficits; most of the decline is due to differential productivity growth. As the United States repays its debt, its trade balance will reverse, but goods-sector employment will continue to fall.
Keywords: global imbalances; structural change; US economy; trade deficits; goods sector employment
JEL Codes: E13; F34; O41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| eliminating trade deficit (F19) | goods sector employment (L81) |
| US trade deficits (F14) | decline in US goods sector employment (F66) |
| differential productivity growth across sectors (O49) | decline in US goods sector employment (F66) |
| saving glut (Y60) | decline in US goods sector employment (F66) |