Are trade wars class wars? The importance of trade-induced horizontal inequality
Year: 2024
Type: article
Abstract: What is the nature of the distributional effects of trade? This paper demonstrates conceptually and empirically the importance of “trade-induced horizontal inequality,” i.e. inequality that occurs among workers with the same level of earnings before the trade shock. This type of inequality does not affect the income distribution but generates winners and losers at all income levels. To quantify the horizontal inequality and changes in the income distribution induced by trade in a data-driven way, we develop a characterization of the welfare impacts, governed by simple and intuitive statistics of labor market and consumption exposure to trade. In the U.S., we find substantial heterogeneity in exposure and thus in the welfare effects of trade shocks across workers. Over 99% of the variance of welfare changes from trade shocks arises within income deciles. These findings run against a popular narrative that “trade wars are class wars.”
Authors: Kirill Borusyak, Xavier Jaravel
Language: English
Topic: Global trade and economics
Domain: Social Sciences
Open Access status: hybrid
Estimated APC paid: $3,760
Awards: EITM: Developing the Tools to Understand Human Performance: An Empirical Infrastructure to Foster Research Collaboration, Centre for Economic Performance 2020-25, G1847908233, ITR-(ECS+ASE)-(dmc+int): Info Tech Challenges for Secure Access to Confidential Social Science Data, Dynamic Employer-Household Data and the Social Data Infrastructure, G8847633907
OpenAlex ID: W4395450439