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We study the effects of a positive export shock on labor allocation between the informal, microenterprise sector and the formal firm sector in a low-income country. The United States-Vietnam Bilateral Trade Agreement led to large reductions in US tariffs on Vietnamese exports. We find that the share of manufacturing workers in Vietnam in the formal sector increased by 5 percentage points in response to the US tariff reductions. The reallocation was greater for workers in more internationally integrated provinces and for younger cohorts. We estimate the gap in labor productivity within manufacturing across the informal and formal sectors. This gap and the aggregate labor productivity gain from the export-induced reallocation of workers across the two sectors are reduced when we account for worker heterogeneity, measurement error, and differences in labor intensity of production. (JEL F16, J24, O14, O17, O19, P23, P33)

This paper presents empirical evidence that the growth of export manufacturing in Mexico during a period of major trade reforms (the years 1986 to 2000) altered the distribution of education. I use variation in the timing of factory openings across commuting zones to show that school drop-out increased with local expansions in export-manufacturing industries. The magnitudes I find suggest that for every 25 jobs created, one student dropped out of school at grade 9 rather than continuing through to grade 12. These effects are driven by less-skilled export-manufacturing jobs which raised the opportunity cost of schooling for students at the margin. (JEL F14, F16, J24, L60, O14, O19)

Trade economists have long studied the effects of globalization on wage differences between workers with different levels of skill or education. 1 This literature has generally sought to link globalization to changes in the economy-wide skill premium. Attanasio, Goldberg, and Pavcnik (2004) and Gonzaga, Menezes Filho, and Terra (2006) are salient examples that investigate whether changes in sector-specific prices or tariffs, changes in skill composition within and across sectors, and movements in the skill premium are consistent with the predictions of workhorse trade models, such as the HeckscherOhlin model. However, there is little evidence directly establishing a causal effect of globalization on the skill premium. 2 More recently, a growing body of research has focused on trade’s differential effects across local markets within a country. 3 In this paper, we combine these two strands of literature by developing a theoretically consistent approach to studying the causal

This paper develops a revealed preference methodology for exploring whether time inconsistencies in household choice are the product of nonstationarities at the individual level or the result of individual heterogeneity and renegotiation within the collective unit. An empirical application to household-level microdata highlights that an explicit recognition of the collective nature of choice allows the vast majority of household behaviour to be rationalised by theory that assumes preference stationarity at the individual level. For our particular short panel data set, simply permitting limited intrahousehold heterogeneity in time preferences allows the choices of 98.4% of the sample to be rationalised by a model that assumes exponential discounting at the individual level. We also find that couples characterized by lower divergence in spousal discount rates are older, more likely to have children and wealthier, which we take as indications of experiencing higher match quality.

A growing body of research examines the regional effects of trade liberalization using a weighted average of trade policy changes across industries. This paper develops a specific-factors model of regional economies that provides a theoretical foundation for this intuitively appealing empirical approach and also provides guidance on treatment of the nontraded sector. In the context of Brazil's early 1990s trade liberalization, I find that regions facing a 10 percentage point larger liberalization-induced price decline experienced a 4 percentage point larger wage decline. The results also confirm the empirical relevance of appropriately dealing with the nontraded sector. (JEL F13, F16, O19, O24)

This paper explores the links between exports, export destinations and skill utilization by firms. We identify two mechanisms behind these links, which we integrate into a unified theory of export destinations and skills. First, exporting to high-income countries with higher valuation for quality leads to quality upgrades that are skill-intensive (Verhoogen, 2008). Second, exporting requires services such as distribution, transportation, and advertising, activities that are also intensive in skilled labor (Matsuyama, 2007). Depending on the characteristics of the source country (such as income, language), the theories suggest a skill-bias in export destinations: firms that export to high-income destinations hire more skills and pay higher wages than firms that export to middle-income countries or that sell domestically. We test the theory using a panel of Argentine manufacturing firms. The data cover the period 1998-2000 and span the Brazilian currency devaluation of 1999. We use the exogenous changes in exports and export destinations brought about by this devaluation in a major export partner to identify the causal effect of exporting and of exporting to high-income countries on skill utilization. We find that Argentine firms exporting to high-income countries hired a higher proportion of skilled workers and paid higher average wages than other exporters (to non high-income countries) and domestic firms. Instead, we cannot identify any causal effect of exporting per se on skill utilization.

Is skill dispersion a source of comparative advantage? While it is established that a country's aggregate endowment of human capital is an important determinant of comparative advantage, this paper investigates whether the distribution of skills in the labor force can play a role in the determination of trade ‡ows. We develop a multi-country, multi-sector model of trade in which comparative advantage derives from (i) dierences across sectors in the complementarity of workers' skills, (ii) the dispersion of skills in the working population. We …rst illustrate how higher dispersion in human capital can trigger specialization in sectors characterized by higher substitutability among workers'skills. Then we use industry-level bilateral trade data to show that human capital dispersion, as measured by a standard international metric, has a signi…cant eect on trade ‡ows. We …nd that the eect is of a magnitude comparable to that of aggregate endowments, as measured in the literature. The result is robust to the introduction of controls for several causes of comparative advantage, as well as to alternative measures of skill complementarity.

In many developing countries, increasing international integration has been accompanied by rising wage inequality, and traditional Heckscher-Ohlin models, which rely on between-sector reallocations to link trade and labor-market outcomes, are difficult to reconcile with this pattern (Goldberg and Pavcnik 2007). Recently, researchers have proposed a number of potential within-sector explanations based on the behavior of heterogeneous firms, involving technology choice, quality upgrading, search and bargaining, or fair wages, among other mechanisms. There is evidence at the plant level to support a within-sector link between trade and inequality. For instance, Verhoogen (2008) finds that initially larger, higher-productivity Mexican plants had higher export propensity and wages in cross-section in 1993 and that they were more likely to increase exports and wages in response to the late-1994 devaluation of the peso. The shock to exporting thus arguably increased dispersion in wages between plants within sectors. At the plant level, however, many of the proposed within-sector mechanisms carry similar observable implications. Distinguishing among the various mechanisms will require moving to a lower level of disaggregation, and exploiting information at the level of individual workers within plants. In this short article and the longer article to which it is a companion (Frías, Kaplan, and Verhoogen 2011), we use employer-employee data from Mexico and an identification strategy from Verhoogen (2008) to examine the effects of exporting on wage outcomes that are not available in standard plant-level datasets. In Frías, Kaplan, and Verhoogen (2011), we estimate the effect of exporting on wage premia, defined as wages above what individual workers would expect to earn elsewhere in the labor market. Wage premia are estimated as plant effects, controlling flexibly for individual heterogeneity (and allowing the return to worker ability to vary over time), implicitly assuming that the plant effect is the same for all employed workers. In this short article, by contrast, we do not attempt to control for worker heterogeneity, but instead focus on the effect of exporting on the shape of within-plant wage distributions. As we show in more detail below, we find that exporting has little effect on wages at the low end of the wage spectrum within plants, and that it raises within-plant wage dispersion, but not uniformly between all quantiles. The results are consistent with, but add important qualifications to, the finding of Verhoogen (2008) in plant-level data that exporting raised the ratio of white-collar to blue-collar average wages. This article is related to an active theory literature on trade, matching, and organizations which has proposed a variety of mechanisms linking trade and wage distributions within firms. Recent papers using employer-employee data to investigate the consequences of trade for labor-market outcomes (without focusing on the overall within-plant distributions) include Krishna, Poole, and Senses (2011); Hummels et al. (2011); and Davidson et al. (2011); see Frías, Kaplan, and Verhoogen (2011) for a fuller literature review.

This study uses household-level data from the United States and Mexico to examine labor-market integration. I consider how the effects of shocks and rates of convergence to an equilibrium differential are affected by borders, geography, and demographics. I find that even though a large wage differential exists between them, the labor markets of the United States and Mexico are closely integrated. Mexico's border region is more integrated with the United States than is the Mexican interior. Evidence of integration precedes the North American Free Trade Agreement (NAFTA) and may be largely the result of migration. (JEL F15, F20, J61)

Dale Jorgenson has bestowed a great honor and no small challenge by inviting me to give this lecture: a great honor because of the distinguished list of economists who have preceded me; a challenge because of the standard they have set, and because there is no greater challenge for any economist than providing a coherent account of significant events to his scientific peers. I am sometimes asked by friends about the differences between academic life and life as a public official. There are many. Two stand out. First, as an academic, the gravest sin one can commit is to sign one’s name to something one did not write. As a public official it is a mark of effectiveness to do so as often as possible. Second, as an academic, if a problem is too hard and does not admit of a satisfactory solution, there is an obvious response: work on a different problem. That is not a luxury that one has in government. I have been reminded of this often in recent years as we have grappled with financial crises in a number of what had previously been considered emerging markets with unrestrained futures. Anyone who doubts the social importance of what economists do should consider the debates surrounding these crises. Hundreds of millions of people who expected rapidly rising standards of living have seen their living standards fall; hundreds of thousands if not millions of children have been forced to drop out of school and go to work; hundreds of billions of dollars of apparent wealth has been lost; the stability of large nations as nations has been called into question; and the United States has made its largest nonmilitary foreign-policyrelated financial commitments since the Marshall Plan. Almost all the issues involved in understanding, preventing, and mitigating these crises are the stuff of economics courses and research: fixed versus flexible exchange rates, moral hazard and multiple equilibria, speculation and liquidity, fiscal and monetary policies, regulation and competition. What economists think, say, and do has profound implications for the lives of literally billions of their fellow citizens. Whether it is discussing the role of derivatives in signaling exchange-rate commitments with Chinese Premier Zhu Rongji, or discussing an NBER working paper on inflation targeting with the Brazilian central bank governor Arminio Fraga, or discussing alternative approaches to bankruptcy law with Indonesia’s economic team, or optimal debt durations with the Mexican authorities, I am consistently struck by the impact of the kind of research discussed at the AEA meetings. The future well-being of the world’s people in large part will depend on how the ongoing process of global integration works out. This is a strong statement, but one that is supported by the global economy’s post-World War I failure and its post-World War II success. Central to global integration is financial integration: the flow of funds and of capital across international borders. And as the events of the late 1920’s and early 1930’s remind us, central to global disintegration can be international financial breakdowns. Today, I want to reflect on the issue of global financial integration in light of the dramatic and largely unpredicted events of recent years. It is perhaps a good time for reflection: there has been enough repair that priority can shift from * U.S. Department of the Treasury, 1500 Pennsylvania Avenue, Washington, DC 20005. This lecture reflects many things I have learned from experiences I have shared with colleagues in the United States government and governments around the world. I thank Brad DeLong, Marty Feldstein, Stephanie Flanders, Ken Rogoff, Andrei Shleifer, and Ted Truman for useful comments and suggestions. I am especially grateful to Nouriel Roubini and Stephanie Flanders for valuable discussions and assistance in the preparation of this lecture. The usual disclaimer applies.

The past two decades have been associated with a rapid increase in the internationalization of production and sales by U.S. producers. These phenomena suggest heightened potential for labor-market participants to be directly affected by dollar movements. When the dollar appreciates, a decline in the competitiveness of U.S. producers may force job loss and churning and lead to reduced worker earnings. Conversely, when the dollar weakens, the demand for workers by exposed sectors may increase, and employment and earnings may expand. Dollar fluctuations may lead to efficiency-enhancing adjustments by producers, but these opportunities and losses by employees may translate into increased job instability for workers. Recent evidence using industry-level data confirms that dollar movements have had implications for labor-market outcomes in some U.S. industries. Within manufacturing, both wages and employment appear to be sensitive to exchange rates, although the employment effects may not be large.' Given these small employment effects, it is reasonable to question whether dollar movements have important consequences for worker displacements and job insecurity. Industry-level data used in prior studies have the disadvantage of understating job turmover to the extent that workers change jobs voluntarily or involuntarily without changing their industry of employment. To better address the importance of dollar movements for worker displacements and job insecurity, we examine the micro data on job-changing and industry-switching of a matched panel of workers drawn from consecutive March Current Population Surveys (CPS), covering 1977 through 1997. We also consider whether dollar appreciations and depreciations have asymmetric effects, and we ask whether these effects change over time and as industries alter their international orientation. We find that dollar appreciations can drive adjustments in job-changing and industryswitching probabilities. These dollar effects are most pronounced for employees in manufacturing-nondurables sector and in nonmanufacturing jobs outside of the service sector. In manufacturing, dollar appreciations can reduce job-changing or industryswitching. In nonmanufacturing overall, the effects of exchange-rate appreciations and depreciations are more mixed. Employment instability falls (rises) with an appreciation (depreciation) of the export exchange rate but rises (falls) with an appreciation (depreciation) of the import exchange rate. The net effect for worker instability differs across nonmanufacturing industries and can vary over time.

This paper presents a dynamic general equilibrium model of R&D-based trade between two structurally identical countries in which both innovation and skill acquisition rates are endogenously determined. Trade liberalization increases R&D investment and the rate of technological change. It also reduces the relative wage of unskilled workers and results in skill upgrading within each industry when R&D is the skilled-labor intensive activity relative to manufacturing of final products. Time-series evidence from the United States and simulation analysis support the empirical relevance of the model, which offers a North–North trade explanation for increasing wage inequality. (JEL F10, F12, F13, D32, D41)