Working Paper: NBER ID: w27905
Authors: Andrés Rodríguez-Clare; Mauricio Ulate; José P. Vásquez
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 two thirds. In addition, there are 18 states that experience welfare losses in the presence of downward nominal wage rigidity that would have experienced gains without it.
Keywords: No keywords provided
JEL Codes: F10; F16; F66
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) | elevated unemployment (J64) |
| DNWR (Q26) | reduced overall U.S. welfare gains (D69) |
| DNWR (Q26) | welfare losses in seven states (D69) |
| DNWR (Q26) | discourages labor participation (J79) |
| DNWR (Q26) | exacerbates unemployment during trade shocks (F66) |
| China shock (F69) | increased unemployment (J65) |
| China shock (F69) | decreased labor force participation (J21) |
| DNWR (Q26) | prevents necessary wage adjustments (E64) |
| improvement in terms of trade (F14) | employment falls (J63) |