Congrats on doing this full time and nice to meet the person behind Nominal News!
I generally steered clear from trade in grad school, as I was primarily interested in labor and demographics, so it's nice to have this perspective. But it makes sense that manufacturing workers would "lose" in trade liberalization. People follow incentives, and (almost?) every person I have ever spoken to in manufacturing has advocated for tariffs, even at the expense of the rest of the country.
Glad you are also pursuing your research! Best of luck!
Is it really true that most previus studies had found that trade liberalizationwas universally benficial? That is certainly not a therotical expectation in light of Stolper Samuelson.
In the Stolper-Samuelson framework, we usually abstract away from consumers and final consumption good. Most trade models now incorporate a final consumption good which is a bundle of tradeable (import exposed) and non-tradeable goods. This means opening up to imports significantly reduces the price of the final consumption good, which in turn means that even if you worked in an import-exposed sector and your wages fell, you’d still be better off as you can buy more of the final consumption good than pre-opening up to trade.
That’s the typical finding of most trade models - the consumer basket price fall outweighs any fall in wages/rise in unemployment etc.
The issue with these models is that they usually assume some of the following:
Representative agents (infinite lives);
No job-specific human capital;
Easy to switch jobs (no re-training cost).
My additional interesting finding is that the people that lose out most from opening up to trade, weren’t the oldest manufacturing workers, but rather than younger ones - those who just joined manufacturing for several years. The CPS data appeared to confirm some of that. That’s because these younger individuals already ‘invested’ in the job they’re doing and were expecting another 30 years of wage growth. Opening up to trade severely cut that, while re-training is also too costly (not enough years to earn wages in the job they re-train for, to offset the investment cost of re-training).
Reasonable and I’d think thre coud be other mechanisms that would aslo interfer with the employment flexibility needed for everyone to benefit even it tht wee posssible.
I remain surpised that many models showed that “Everyone” benefitted. After all any trade change just changes relative prices: some go up and some go down. Trade liberalization reduces the prices of the formerly restricted goods ans their susbtitutes, but raises prices of exports and their substitutes.
As a practical explanation for trade shocks I focus on:
a) most of the changes were from transport and communications technology and reduced anti export bias in trading partners not changes in US policy.
b) the overall trade deficit = the investment minus saving deficit which I attribue mainly to federal deficits in excess of public invetment
c) some bias in US trade negotiations in puttting more effort into removing obstacles to US exports of agricltural good and servies than manufactured exports. [Not quite the same thing, but I recall in Indonesia the embassy had an ag attache that worried about Indonesian restrictions on US honey, apples and chicken parts! :)]
The reason for the overall benefit is that in absolute terms people are better off. Relatively, the exposed workers are worse off to others. For example - this paper - https://itskhoki.com/papers/TradeLMDynamics.pdf
I was just going one a long held assumption that no change is Pareto Dominant. However much the total improves, there will always be some net loosers. My on quasi exception woud be for a swarm of positive changes, any one of which would leave some folks behind but they’d benefit from a diffeent change.
This links back to my view that trade openness was perceived as such a shoks was that the total exonomy was not growing fast enougn, partly from the deficit drag, possibly not stimulative enough monetary policy, or for maufactuinr ght terms of trade effect vis a vis services, or NEPA-NIMBY regultory drag.
Glad you are writing full time. Regarding thoughts on writing, yes it is important and obligatory to cite matters important to your research. Methods used by economists vary, yielding variability in results. So brief descriptions, educational in nature, are useful. I follow Paul Krugman. I think your opinion in the writing is warranted, especially in geopolitical policy analyses. Many aspects of his style make for good reading. History, humor, sarcasm, and easily understood visualization of the data (see Thomas Pueyo as example).
Most importantly, describing why you chose the topic is important to know for a broader understanding of your research.
Congrats on doing this full time and nice to meet the person behind Nominal News!
I generally steered clear from trade in grad school, as I was primarily interested in labor and demographics, so it's nice to have this perspective. But it makes sense that manufacturing workers would "lose" in trade liberalization. People follow incentives, and (almost?) every person I have ever spoken to in manufacturing has advocated for tariffs, even at the expense of the rest of the country.
Glad you are also pursuing your research! Best of luck!
Is it really true that most previus studies had found that trade liberalizationwas universally benficial? That is certainly not a therotical expectation in light of Stolper Samuelson.
In the Stolper-Samuelson framework, we usually abstract away from consumers and final consumption good. Most trade models now incorporate a final consumption good which is a bundle of tradeable (import exposed) and non-tradeable goods. This means opening up to imports significantly reduces the price of the final consumption good, which in turn means that even if you worked in an import-exposed sector and your wages fell, you’d still be better off as you can buy more of the final consumption good than pre-opening up to trade.
That’s the typical finding of most trade models - the consumer basket price fall outweighs any fall in wages/rise in unemployment etc.
The issue with these models is that they usually assume some of the following:
Representative agents (infinite lives);
No job-specific human capital;
Easy to switch jobs (no re-training cost).
My additional interesting finding is that the people that lose out most from opening up to trade, weren’t the oldest manufacturing workers, but rather than younger ones - those who just joined manufacturing for several years. The CPS data appeared to confirm some of that. That’s because these younger individuals already ‘invested’ in the job they’re doing and were expecting another 30 years of wage growth. Opening up to trade severely cut that, while re-training is also too costly (not enough years to earn wages in the job they re-train for, to offset the investment cost of re-training).
Reasonable and I’d think thre coud be other mechanisms that would aslo interfer with the employment flexibility needed for everyone to benefit even it tht wee posssible.
I remain surpised that many models showed that “Everyone” benefitted. After all any trade change just changes relative prices: some go up and some go down. Trade liberalization reduces the prices of the formerly restricted goods ans their susbtitutes, but raises prices of exports and their substitutes.
As a practical explanation for trade shocks I focus on:
a) most of the changes were from transport and communications technology and reduced anti export bias in trading partners not changes in US policy.
b) the overall trade deficit = the investment minus saving deficit which I attribue mainly to federal deficits in excess of public invetment
c) some bias in US trade negotiations in puttting more effort into removing obstacles to US exports of agricltural good and servies than manufactured exports. [Not quite the same thing, but I recall in Indonesia the embassy had an ag attache that worried about Indonesian restrictions on US honey, apples and chicken parts! :)]
The reason for the overall benefit is that in absolute terms people are better off. Relatively, the exposed workers are worse off to others. For example - this paper - https://itskhoki.com/papers/TradeLMDynamics.pdf
This one - https://spinup-000d1a-wp-offload-media.s3.amazonaws.com/faculty/wp-content/uploads/sites/40/2019/06/CDP.pdf - actually has slight losses - some groups see a 0.8% loss. My research (at least in the current state) showed lifetime losses up to 5%.
I was just going one a long held assumption that no change is Pareto Dominant. However much the total improves, there will always be some net loosers. My on quasi exception woud be for a swarm of positive changes, any one of which would leave some folks behind but they’d benefit from a diffeent change.
This links back to my view that trade openness was perceived as such a shoks was that the total exonomy was not growing fast enougn, partly from the deficit drag, possibly not stimulative enough monetary policy, or for maufactuinr ght terms of trade effect vis a vis services, or NEPA-NIMBY regultory drag.
Pawal
Glad you are writing full time. Regarding thoughts on writing, yes it is important and obligatory to cite matters important to your research. Methods used by economists vary, yielding variability in results. So brief descriptions, educational in nature, are useful. I follow Paul Krugman. I think your opinion in the writing is warranted, especially in geopolitical policy analyses. Many aspects of his style make for good reading. History, humor, sarcasm, and easily understood visualization of the data (see Thomas Pueyo as example).
Most importantly, describing why you chose the topic is important to know for a broader understanding of your research.
Steve
Congrats on making the jump to full time