Essays in Trade and Labor Economics

Abstract

This collection consists of three chapters whose overarching theme is inequality. The first chapter explores the differential impact of trade liberalization on workers according to their educational attainment when schooling decisions are endogenous. My main findings are that the oldest educated workers gain most from trade liberalization, while the oldest uneducated workers gain the least. Moreover, I find that ignoring the economy's transition path following trade liberalization leads to an understatement of trade-induced inequality, while ignoring the endogeneity of workers' schooling decisions leads to an overstatement of trade-induced inequality.

The second chapter explores the differential impact of global changes on workers depending on their sectoral choice. I develop a model with endogenous unemployment, labor-force-participation and sectoral-entry decisions. In order to quantify the impact of global changes on the Canadian economy, I calibrate the model to Canadian data from 1993-2010. My main findings are that world price changes lead to an increase in unemployment in the manufacturing and service sectors, while they lead to a decrease in unemployment in the the natural resource and agriculture sectors. Labor-force participation increases in the natural resource sector as a result of changing world prices, but changes little in other sectors. Finally, I find that changes in world prices from 1993 to 2010 lead to a 7.5% decrease in aggregate welfare in the short run and to a 5.5% decrease in the long run.

The final chapter, cowritten with Leif Danziger, shows that a graduated minimum wage, in contrast to a constant minimum wage, can provide a strict Pareto improvement over what can be achieved with an optimal income tax. The reason is that a graduated minimum wage requires high-productivity workers to work more to earn the same income as low-productivity workers, which makes it more difficult for the former to mimic the latter. In effect, a graduated minimum wage allows the low-productivity workers to benefit from second-degree price discrimination which increases their income.