Trade policy and wage inequality: A structural analysis with occupational and sectoral mobility

A number of authors have argued that a worker's occupation of employment is at least as important as the worker's industry of employment in determining whether the worker will be hurt or helped by international trade. We investigate the role of occupational mobility on the effects of trade shocks on wage inequality in a dynamic, structural econometric model of worker adjustment Each worker in our specification can switch either industry, occupation, or both, paying a time-varying cost to do so in a rational-expectations optimizing environment. We also specify a novel model of offshoring based on task-by-task comparative advantage that collapses to a very simple form for simulation. We find that the costs of switching industry and occupation are both high, and of similar magnitude. In simulations we find that a worker's industry of employment is much more important than either the worker's occupation or skill class in determining whether or not she is harmed by a trade shock, but occupation is crucial in determining who is harmed by an offshoring shock (C) 2015 Published by Elsevier B.V.