Global Imbalances and Structural Change in the United States

Abstract

Since the early 1990s, as the United States has borrowed from the rest of the world, employment in the U.S. goods-producing sector has fallen. We construct a dynamic general equilibrium model with two mechanisms that could generate declining goods-sector employment: foreign lending and differential productivity growth across sectors. We find that 18 percent of the decline in goods-sector employment from 1992 to 2012 follows from U.S. trade deficits. Most of the decline in employment in the goods sector can be accounted for by differences in productivity growth across sectors. As the United States repays its debt, its trade balance will reverse, but goods-sector employment will continue to fall.