International trade and labor income risk

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In “International Trade and Labor Income Risk in the United States,”  Pravin Krishna and Mine Zeynep Senses tackle a topic that has received a lot of attention in the policy arena but, as far as I know, not been subject to extensive empirical assessment. They “find import penetration to have a statistically significant association with labor income risk in the United States, with economically significant welfare effects.”

They specify an income process with transitory and persistent shocks and then “combine industry-level, time-varying estimates of the persistent component of labor income risk with measures of industry exposure to international trade to estimate the relationship between labor income risk and trade.” Both workers who switch industries and workers in industries with increased import penetration experience higher labor income risk (defined as the variance of unpredictable changes in earnings).

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