with Rafael Dix Carneiro, Joao Pessoa, and Ricardo Reyes-Heroles

Recent literature has shown that globalization can substantially disrupt labor markets. At the same time, the US economy has sustained large trade decits for decades. While this has led some policy makers to regard trade decits as a threat to workers, trade economists typically disregard imbalances in studies of labor market adjustment. We fill this gap and study the role of global imbalances in shaping both the adjustment dynamics, and the long run consequences, of trade shocks. We build an estimable, general equilibrium, multi-country, multi-sector model of trade with 3 key ingredients: (a) representative households make consumption-saving decisions in each country; (b) costly reallocation of workers across sectors; and (c) matching frictions in segmented labor markets leading to unemployment dynamics. We estimate our model using data from the World Input-Output Database and household surveys and study the behavior of national labor markets in response to several globalization shocks, including shocks to: (1) technology; (2) trade costs; (3) inter-temporal preferences (e.g. savings gluts). We finnd that modeling trade imbalances quantitatively changes both the short and long run implications of globalization shocks.

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