Labor Reallocation Research Articles

The impact of trade sanctions on the relative demand for skilled labor and wages: Evidence from Iran

ABSTRACT This paper examines the effects of trade sanctions on the relative demand for skilled labor and wages by using Iranian industrial manufacturing data covering 7 years before and 7 years after the sanction year. The decomposition of the change in the aggregate demand for skilled labor sheds light on the fact that it comes from labor reallocation within industries, not from across industries. The trade sanctions adversely affected both exporters' and non-exporters' total factor productivity; however, non-exporters endured a larger negative impact. As a result of the significant reduction in industries' total factor productivity, the relative demand for skilled labor decreases which results in a decrease in the real wage per-worker as well. Furthermore, exporters, compared to non-exporters, are responsible for more changes in the relative demand for skilled labor, are faster in changing skills, and their change in skills have a greater impact on the real wage per-worker.

Trade, Labor Reallocation Across Firms and Wage Inequality

This paper develops a framework for studying the effects of higher trade openness on the wage distribution that emphasizes within-industry labor reallocation across firms, strong skill-productivity complementarities in production and heterogenous fixed export costs across firms. Assuming no entry in the industry, an autarkic economy that opens to trade experiences a pervasive rise in wage inequality; a trade liberalization in a trading economy increases inequality at the lower end of the distribution, but may reduce it elsewhere. Assuming free entry, opening to trade could result in pervasively higher inequality or wage polarization. The analysis highlights the importance of new exporters (extensive margin) in shaping the aggregate relative demand for skills, a channel controlled by the distribution of fixed export costs in the model.

Agricultural revolution and industrialization

This study explores how agricultural technology affects the endogenous takeoff of an economy in the Schumpeterian growth model. Due to the subsistence requirement for agricultural consumption, an improvement in agricultural technology reallocates labor from agriculture to the industrial sector. Therefore, agricultural improvement expands firm size in the industrial sector, which determines innovation and triggers an endogenous transition from stagnation to growth. Calibrating the model to data, we find that without the reallocation of labor from agriculture to the industrial sector in the early 19th century, the takeoff of the US economy would have been delayed by about four decades.

Can labour market institutions mitigate the China syndrome? Evidence from regional labour markets in Europe

AbstractThis paper investigates how labour market regulations alter the adverse impact of rising import competition from China in European local labour markets between 1997 and 2006. The paper constructs measures of regional exposure to Chinese imports based on previous literature and on regional labour market frictions exploiting involuntary labour reallocations. Taking into account the endogeneity of import competition and its interaction with labour market regulations, the paper finds that regions more exposed to the rise of China have suffered from a reduction in manufacturing employment shares. This shock grows larger with regional labour market frictions; hence, it exacerbates the impact of trade shock on employment. Moreover, the paper finds that employment in public services, and not in construction or private services sector, absorbed the negative shock to the manufacturing sector. The unemployment rate, the labour force participation rate and wages in all sectors are unresponsive to import competition from China.

Non-traded goods, factor market frictions, and international capital flows

The canonical one-sector model over predicts international capital flows by a factor of ten. We show that introducing a non-traded goods sector can reconcile the differences between the theoretical predictions and the observed flows. We analyze the quantitative impact of the non-traded sector using a calibrated model of a small open economy, in which non-traded goods are used in consumption and investment, and need capital and labor to be produced. The model features international frictions directly affecting international borrowing and lending, as well as domestic frictions that limit the scope of inter-sectoral reallocation of capital and labor. We find that: (1) the impact of domestic frictions on the size of international capital flows is similar to the impact of international frictions, and (2) the median elasticity of capital flows with respect to international frictions in the two-sector model with costly inter-sectoral reallocation is about 50-60% lower than that same elasticity in the one-sector model.

Slicing the Pie: Quantifying the Aggregate and Distributional Effects of Trade

Abstract We develop a multi-sector gravity model with heterogeneous workers to quantify the aggregate and group-level welfare effects of trade. The model generalizes the specific-factors intuition to a setting with labour reallocation, leads to a parsimonious formula for the group-level welfare effects from trade, and nests the aggregate results in Arkolakis, Costinot and Rodríguez-Clare (2012, “New Trade Models, Same Old Gains?”, American Economic Review, 102, 94–130). We estimate the model using the structural relationship between China-shock driven changes in manufacturing employment and average earnings across US groups defined as commuting zones. We find that the China shock increases average welfare but some groups experience losses as high as four times the average gain. However, adjusting for plausible measures of inequality aversion barely affects the welfare gains. We also develop and estimate an extension of the model that endogenizes labour force participation and unemployment, finding similar welfare effects from the China shock.

The Effect of Labor Reallocation and Economic Growth in China

In recent years, China’s economic growth rate has slowed down significantly, exceeding the normal range of cyclical fluctuations in terms of declining rate and period. However, the research on the structural problems of the economic slowdown from the sector level is still limited. This paper uses a novel index decomposition method to decompose the covariant effect according to the influence of factors. It separates the labor input effect (LIE), labor reallocation effect (LRE), and labor productivity effect (LPE) from China’s economic growth rate from 1989 to 2019. The evolving characteristics and influence of these effects are revealed. It also focuses on the structural problems of the economic slowdown caused by the LRE. The study found that: (i) the economic contribution rate of LIE declined during the study period and had recently shown a negative value; (ii) the economic contribution rate of LRE peaked in 2014 and then rapidly declined; (iii) LPE has always been an essential contributor to China’s economic growth, with an annual contribution rate of 80%. The key factors behind China’s downward economic growth are the decline of the new labor force input, the weakening of LRE, and the technological progress rate in some sectors that have declined. The analysis of the LRE found that 37% of the economic slowdown could be explained by it. The reason behind economic slowdown lies in how the labor force transfers: (i) from agriculture to non-modern services without manufacturing; and (ii) from high-productivity sectors (usually manufacturing) to low-productivity sectors (usually non-modern services). In order to reduce the downward pressure of economic growth, future development intervention measures should focus on improving the employment absorption capacity of manufacturing, enabling enterprise innovation, correcting distorted industrial development policies, and prudently treating environmental protection policies and industrial upgrading policies.

Land reallocation responses to China's New Rural Pension Scheme: Evidence from a regression discontinuity design

This study examines how labor reallocation has been associated with land reallocation following the implementation of the New Rural Pension Scheme (NRPS) in 2009. Based on data from the China Health and Retirement Longitudinal Survey (CHARLS) gathered during two periods (2013 and 2015), it uses the discrete changes generated by the new program's rules to identify the impact on land reallocation, as represented by the amount of land rented out by the elderly and their spouses. The age 60 NRPS eligibility threshold is associated with large increases in land rented out. The most important channel identified is the increase in the number of adult-children migrants, which reduces the number of farm workers and may help relax credit constraints. In contrast, the NRPS program has had no impact on the extent of elderly labor; there are no changes in their time spent caring for grandchildren or paid work in the labor market. A deeper examination of the welfare effect shows that despite labor and land reallocation, the NRPS has had no impact on either household consumption or elderly well-being. This study contributes to the literature by connecting land (as a factor of production) with the pension scheme, which may have policy implications regarding how money transfer programs would affect land and labor reallocation and individual welfare in other countries in the global context.

Import competition and gender differences in labor reallocation

We study gender differences in the labor market reallocation of Peruvian workers in response to trade liberalization. The empirical strategy relies on variation in import competition across local labor markets based on their industrial composition before China entered the global market in 2001. In contrast to much of the existing literature, we find that import competition did not have persistent negative employment effects on men or led them to sort into the non-tradable or informal sectors. The adverse effects on the employment of low-educated women in the tradable sector, however, persist over time leading them to sort into the non-tradable sector or out of the labor force. The results are consistent with a mechanism in which gender occupational and industrial segregation leads to a widening of the gender gap in employment.

China’s factor reallocation effect considering energy

Decomposing growth rate of total factor productivity (TFP) into internal growth effect and the effect of factor reallocation formed by the flow of capital, labor and energy between sectors, we took 23 subsectors as the research object and adopted the multi-sector growth accounting framework (MSGAF) to verify the ‘structural bonus hypothesis’ from 2005 to 2017. The study drew the following conclusions: First, internal growth effect represented by sectoral technology progress was still the main contributor to TFP growth of the overall economy, but the contribution rate had decreased. Second, the reallocation effect of capital changed from structural burden to structural bonus. Third, the reallocation effect of labor showed a trend of first rising and then falling, changing from structural bonus to structural burden. Forth, the effect of energy reallocation was gradually emerging, with a shift from structural burden to structural bonus. Based on these research results, we argue that more attention should be paid to the efficiency of factor reallocation in addition to the technology progress. The inefficiency of factor reallocation caused by imperfect market and asymmetric information would partially offset the effect of technology progress and hinder the high-quality economic development. In view of the reallocation of capital, labor and energy, we propose the following suggestions: For capital, macro-control and market mechanism should be comprehensively accounted for. Further, capital must be allocated per the principle of profit maximization to ensure that its elasticity and allocation efficiency will be improved. The reallocation of labor should not only be limited to the 3-sector level. More attention should be paid to the marginal output differences within the secondary sector. For energy, attention should be paid to the elasticity of energy output between sectors to avoid inefficient allocation. It is also necessary to accelerate the phase-out of industries with high energy consumption and high pollution, promote the development of low energy industries to encourage ‘energy conservation and emission reduction’ as well as ‘green development’ by increasing the effect of energy reallocation.

Real estate expansion and manufacturing wage increase in China: From the perspective of labor reallocation

The massive expansion of China's real estate sector has raised manufacturing wage through the channel of reallocating low-skilled labor from manufacturing sectors to the real estate sector. Using data of manufacturing firms in 35 major cities from 2000–2007, we find that the expansion of the real estate sector resulted in higher manufacturing wage. Additionally, we find that this positive effect was more pronounced among labor-intensive firms, among non-SOEs, and among firms in cities with a low development level of the labor market. By investigating the occupation choice of rural-to-urban migrant workers, we find that real estate expansion made migrant workers less likely to choose manufacturing jobs while more likely to choose construction jobs, which further confirms the labor reallocation story.

What Role Has Structural Change Played in Growth Accelerations for the Indian States? An Analysis for Pre- and Post-liberalization Periods

This article analyses the role of structural change in explaining growth accelerations and decelerations in Indian states over the 30 years from 1980–1981 to 2010–2011. We employ conventional shift-share analysis to measure the sectoral contribution to productivity growth. We apply this methodology to an eight-sector data set for 15 major states. Our results show that productivity changes ‘within’ sectors explain the considerable improvement in productivity in Indian states rather than the reallocation of labour to more productive sectors. At the aggregate level and for several states, significant contribution to productivity improvements has emanated from agriculture, trade and manufacturing sectors. In all these sectors, the main contribution emerged from within sector productivity improvements, not from structural changes. However, the reallocation effect has appeared to deliver marginal gains to overall productivity in recent periods, which is evident for construction, manufacturing, trade and services sectors. JEL Classification: O10, O40, O47, R11

Accounting for structural transformation in the U.S.

I account for the sources of labor reallocation from the manufacturing sector towards services in the United States for the 1950 to 2010 period. I use a multi-sector model with sector-specific productivity growth and non-homothetic preferences to decompose the sources of labor reallocation into supply-side, demand-side, and wedge distortions. The decomposition is performed in the context of a competitive economy where the competitive equilibrium with wedges reproduces prices and quantities of the economy exactly. During the 1950–2010 period, the demand-side mechanism accounts for 57% of the reallocation of labor and the supply-side for 28%. Focusing only in the sub-period from 1950 to 1980, 70% of the reallocation is demand-driven. In the sub-period between 1980 and 2010, the three sources of labor reallocation are quantitatively important. Demand-side accounts for 47%, supply-side for 42% and wedge distortions for 10%.

Understanding and modelling the ambiguous impact of off-farm income on tropical deforestation

ABSTRACT Few land-allocation models consider the impact of off-farm income on tropical deforestation. We provide a concept to integrate off-farm income in a mechanistic multiple-objective land-allocation model, while distinguishing between farms with and without re-allocation of on-farm labor to obtain off-farm income. On farms with re-allocation of labor we found that off-farm income reduced farmers’ financial dependency on deforestation-related agricultural income leading to less tropical deforestation. The influence of off-farm income covered two aspects: availability of additional income and re-allocation of on-farm labor to off-farm activities. The labor effect tended to reduce deforestation slightly more than the income effect. On farms without re-allocation of on-farm labor we showed how farmers can use off-farm income to purchase additional labor to accelerate deforestation. Our study highlights the importance of considering off-farm income in land-use models to better understand, model and possibly curb tropical deforestation.

An analysis of the economic growth of population mobility and rent-seeking behavior

Since the 1990s, China’s massive wave of population shift has become a unique landscape in the reform of China’s social and economic structure. As a reallocation of labor and human capital, this shift of population has on one hand emerged with the great transformation of social and economic structure. In the meantime, over the past 30 years, rent-seeking activities were rampant and in the traditional theory of rent-seeking, it is believed that rent-seeking will reduce the growth of economic. In this case, it is as if rent-seeking activities is going hand in hand with the economic growth. This article aims at studying from the angle of rent-seeking and the flow of talents, hence building an endogenous career choice model for trade-offs between producers and rent-seekers. Meanwhile assuming talent flows only emerge in economically developed regions and economically less developed regions, then bind them together to study the growth of economic.

Comparative Advantage in (Non-)Routine Production

We illustrate a new source of comparative advantage that is generated by countries’ different ability to adjust to technological change. Our model introduces substitution of workers in codifiable (routine) tasks with more efficient machines, a process extensively documented in the labor literature, into a canonical 2 × 2 × 2 Heckscher-Ohlin model. Our key hypothesis is that labor reallocation across tasks is subject to frictions, the importance of which varies by country. The arrival of capital-augmenting innovations triggers the movement of workers out of routine tasks, and countries with low labor market frictions become relatively abundant in non-routine labor. In the new equilibrium, more flexible countries specialize in producing goods that use non-routine labor more intensively. We document empirically that the ranking of countries with respect to the routine intensity of their exports is strongly related to labor market institutions and to cultural norms that influence adjustment to technological change, such as risk aversion or long-term orientation. The explanatory power of this mechanism for trade flows is especially strong for intra-EU trade.

Import Competition and Gender Differences in Labor Reallocation

We study gender differences in the labor market reallocation of Peruvian workers in response to trade liberalization. The empirical strategy relies on variation in import competition across local labor markets based on their industrial composition before China entered the global market in 2001. We find that exposure to Chinese imports led to short-run declines in the employment share of women and men. However, the adverse employment effects are only persistent for women, leading to a reduction in their labor force participation. Lack of job market opportunities in the non-tradable sector act as a significant friction that prevents women from fully offsetting trade-induced displacements.

Working from a Distance: Productivity Dispersion and Labor Reallocation

Working from a Distance: Productivity Dispersion and Labor Reallocation

Moving out of Agriculture as Emancipation? Property Rights, Labor Reallocation, and Gender Inequality in Rural China

Moving out of Agriculture as Emancipation? Property Rights, Labor Reallocation, and Gender Inequality in Rural China

Import Competition, Formalization, and the Role of Contract Labor

Using the case of the Indian manufacturing sector and exploiting plausibly exogenous variation from Chinese imports, we provide causal evidence that higher import competition increases the share of the formal enterprise employment. We find an increase in the level of formal enterprise employment, driven by the high productivity firms, and in contrast, a fall in the informal enterprise employment. This labor reallocation is enabled by contract workers, who do not carry stringent ring costs. Our estimates imply that Chinese import competition led to an increase in the share of formal sector employment by 4.1 percentage points between 2000 and 2005. We calculate the labor productivity gap between the formal and informal sector, adjusting for differences in prices and worker characteristics and find them to be salient in explaining the observed gap. Our preferred estimate of the productivity gap implies an increase in labor productivity by 3.19% in response to Chinese import competition.