Essays on labor mMarkets and globalization

Abstract

My dissertation consists of three chapters. The common theme that unifies the chapters is the analysis of how globalization and trade impact labor market outcomes. In the first chapter, I summarize the literature on this theme and analyze the shortcomings that are present in existing works. In the early 1990s, a large body of work was developed that showed that many of the predictions of the standard Heckscher-Ohlin theory failed to hold in the data. As a result, many authors disregarded increased trade and globalization as a possible driving force behind the observed changes in labor market outcomes. However, in more recent years, authors have begun modifying new trade theories to begin to explore how trade and globalization might impact wages and unemployment through different channels. In this chapter, I summarize the innovations that have occurred along these lines, as well as the empirical support that exists for the proposed theories. The second chapter of my dissertation explores the business cycle effects of increased globalization. Over the past 20 years, following recessions, recoveries in labor markets have been slow and weak relative to their post-war average. Over the same period, the United States has become increasingly open to trade and global forces. In this chapter of the thesis, I argue that changes in labor market outcomes can be tied to increased globalization. I build a model in which increased openness to growing economies generates a downward trend in employment which is amplified by recessions, thus generating jobless recoveries. I provide empirical evidence for the relationship between globalization and labor market outcomes and I show that the model is able to qualitatively match not only the targeted changes in labor markets, but also a persistent negative trade balance and increasing income inequality. In the third chapter of my dissertation, I explore the impact that trade has upon in- vestment in technologies that are skill-augmenting and how this, in turn, impacts the relative return to skilled labor. In the decade following the Mexico-U.S. trade integration, the manufacturing skill premium rose by almost 60 percent in Mexico and by only 12 percent in the U.S. Standard trade theory predicts that when countries with different levels of skilled labor integrate, the skill premium should fall - not rise - in the skill- scarce country. In the third chapter, I reconcile theory and data by building a model in which intermediate goods are produced using rented technology. After integration, producers in Mexico begin to rent technologies from the United States, which are more advanced and, hence, more skill-intensive. This has two effects: The skill premium in Mexico rises due to adoption of the more advanced technology and the skill premium in the U.S. rises due to increased investment in this technology, which is driven by the increased marginal return on technology arising from to its adoption in Mexico. The mechanism is supported by industry-level evidence: Mexican industries which are integrated into the U.S. supply chain have higher skill premia than their non-integrated counterparts. The calibrated model can account for about two-thirds of the increase in the skill premium in each country.