Trade, Technology, and Prosperity: An Account of Evidence from a Labor-market Perspective

This report assesses the state of economic research into those areas, with a particular focus on empirical methodologies and their adequacy for an assessment of general-equilibrium outcomes. While difference-in-differences techniques and instrumental- variable approaches provide answers, they exhibit shortcomings that limit conclusiveness. Recent advances in structural estimation of multi-country and multisector models that allow for reallocation frictions in domestic labor markets hold promise to deliver more definite empirical answers. Interestingly, a conclusion from a two-decades old strand of literature seems to be vindicated by conclusions from a related recent literature: roughly one-quarter of changes in labor-market outcomes (wage inequality then and manufacturing job losses now) was predicted by trade integration and roughly one-third by technological change. The remainder of changes in labor-market outcomes remains unaccounted. The report offers candidate explanations, rooted in recent evidence, how interactions between globalization, technological progress, and structural change may account for that remainder.

No: ERSD-2017-15

Authors: Marc-Andreas Muendler, UC San Diego, CESifo and NBER

Manuscript date: November 2017

Key Words:

Trade, current account balance, automation, choice of technology, industrial structure and structural change, labor-market outcomes, employment, jobs, wages, inequality

JEL classification numbers:

F16, F32, J23, J2, L1, O14.

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This is a working paper, and hence it represents research in progress. The opinions expressed in this paper are those of its author. They are not intended to represent the positions or opinions of the WTO or its members and are without prejudice to members' rights and obligations under the WTO. Any errors are attributable to the author.

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