Working Paper: NBER ID: w29612
Authors: Liuchun Deng; Pravin Krishna; Mine Zeynep Senses; Jens Stegmaier
Abstract: In this paper, we empirically assess the causal links between trade and individual income risk and study the role that human capital plays in this relationship using a rich, worker-level, longitudinal data set from Germany spanning 1976 to 2012. Our estimates suggest substantial heterogeneity in labor income risk across workers in different entry cohorts and across workers with different levels of industry- and occupation-specific human capital. Our findings suggest that within-industry changes in imports and exports are causally related to income risk: Imports increase risk and exports decrease risk, and they do so in an economically significant manner. Importantly, we find there to be a complex interplay between human capital and the linkage between trade and risk: While, on average, individuals with higher levels of industry- or occupation-specific human capital experience lower income risk, a given increase in net-imports exposure in an industry increases risk for workers with higher levels of industry tenure more than it does for workers with lower levels of industry tenure. High levels of industry-specific human capital can be costly for workers in highly trade-exposed industries. By contrast, we find no evidence of any interaction between risk, industry trade exposure, and occupation-specific human capital.
Keywords: Trade; Human Capital; Income Risk
JEL Codes: F1; F11; F16; F6; J24; J63
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Occupational Tenure + Trade Exposure (J29) | Income Risk (G52) |
| Imports (F14) | Income Risk (G52) |
| Exports (F10) | Income Risk (G52) |
| Human Capital (Industry-Specific) + Imports (J24) | Income Risk (G52) |
| Trade Exposure (F14) | Income Risk (G52) |