International trade and labor reallocation: misclassification errors, mobility, and switching costs

Dvorkin, Maximiliano

doi:10.20955/wp.2021.014

Working Paper Revision

International trade and labor reallocation: misclassification errors, mobility, and switching costs

Abstract: International trade has increased at a rapid pace in the last decades, altering production and labor demand in different sectors of the economy. The estimated effects of trade on employment and welfare critically depend on data about workers’ reallocation patterns, which is typically plagued with coding errors. I show that the estimated employment and welfare effects of international trade, and the estimated structural parameters of standard models are biased when the analysis uses data subject to misclassification errors. I develop an econometric framework to estimate misclassification probabilities, corrected mobility matrices, and structural parameters, and show that the estimated employment and welfare effects of a trade shock are different from those estimated with uncorrected data, raising an important warning about conclusions drawn from data with coding errors.

Keywords: international trade; labor markets; classification errors; mobility; worker reallocation; structural estimation;

JEL Classification: F16; F66; J24; J62; C25;

https://doi.org/10.20955/wp.2021.014