During the “Great Trade Collapse” of 2008, Mexico’s trade with the U.S. fell nearly 45 percent. The severity and suddenness of this unfortunate external shock for Mexico provides a natural experiment to assess the effect of trade shocks on labor market outcomes in a developing economy. Our analysis of Mexico’s social security records suggests that, contrary to many other studies, employment is more responsive to trade shocks than wages (at least in the short run). Formal employment in the trade-intensive northern states fell more than 9 percent from September 2008 to March 2009, while the average change in the log real wage of workers who stayed at the same firm between quarters was 0.030 and 0.018 in the first and second quarters of 2008 respectively and -0.001 and -0.012 in the third and fourth quarters respectively. The authors develop a new measure of industry relatedness to analyze how the shocks are spread through the economy, both across industries and over time, and find evidence suggesting that trade shocks spread through output linkages rather than through worker mobility.
- trade shocks,
- labor market dynamics,
- adjustment costs
Available at: http://works.bepress.com/david_kaplan/17/