Working Papers
Labor Market Responses to Trade: Job Creation and Destruction Across Space and Sectors
Abstract
Frictional Labor Market, Spatial Sorting and Disparities
Abstract
This paper explores how frictional labor markets contribute to spatial labor sorting and, consequently, to disparities in productivity, wages, and unemployment across regions. The model incorporates frictional labor matching with two worker types, two locations, and free labor mobility. It predicts that the skilled workers tend to sort into areas with higher productivity, higher wages, and lower unemployment rates. Empirical evidence aligns with these theoretical predictions, suggesting that frictional labor markets play a crucial role in shaping spatial economic disparities.Trade, Uncertainty and Endogenous Credit Constraint
with Yan Chen
, Qi Zhang
Abstract
This paper investigates whether trade can alleviate or exacerbate capital misallocation caused by credit constraints. Using a difference-in-differences approach with firm-level balance sheet data, we find that U.S. firms facing greater reductions in trade policy uncertainty experienced decreased financial constraints. To explore this mechanism, we construct a multi-sector, two-country model featuring endogenous credit constraints and heterogeneous firms. The model demonstrates that trade induces a selection effect, pushing less productive—and more financially constrained—firms out of the market. Simultaneously, more productive firms expand with lower marginal costs due to cheaper imports, easing their credit constraints. As a result, trade reduces the distortions caused by credit constraints, leading to substantial welfare gains.Work in Progress
A Multi-country Real Business Cycle Model of International Trade and Finance
with Tianyang Xie, Chenyanzi Yu