TY  - JOUR
AU  - Lee, Eunhee
AU  - Yi, Kei-Mu
TI  - Global Value Chains and Inequality with Endogenous Labor Supply
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 24884
PY  - 2018
Y2  - August 2018
DO  - 10.3386/w24884
UR  - http://www.nber.org/papers/w24884
L1  - http://www.nber.org/papers/w24884.pdf
N1  - Author contact info:
Eunhee Lee
Department of Economics
University of Maryland
Tydings Hall
7343 Preinkert Drive
College Park, MD 20902
Tel: (301) 405-3534
E-Mail: eunhee11@umd.edu

Kei-Mu Yi
Department of Economics
University of Houston
3623 Cullen Blvd.
Houston, TX 77204
Tel: 713/743-3331
Fax: 713/743-3798
E-Mail: yik.work@gmail.com
M1  - published as Eunhee Lee, Kei-Mu Yi. "Global Value Chains and Inequality with Endogenous Labor Supply," in Gordon H. Hanson and Stephen J. Redding, organizers, "Trade and Labor Markets" Elsevier, Journal of International Economics (2018)

M3  - presented at "Trade and Labor Markets", October 13-14, 2017
AB  - We assess the role of global value chains in transmitting global integration shocks to aggregate trade, as well as distributional outcomes. We develop a multi-country general equilibrium trade model that features multi-stage production, with different stages having different productivities and using factors (occupations) with different intensities. The model also features a Roy mechanism, in which heterogeneous workers endogenously choose their sector and occupation. Country- and worker-level comparative advantages interact. A reduction in trade costs leads to countries specializing in their comparative advantage sectors and production stages. This specialization changes labor demand, and also leads to more workers shifting to their comparative advantage sectors and occupations. We calibrate our model to the U.S., China, and the rest of the world in 2000 and we simulate a decline in China's trade costs with the U.S., designed to mimic China's entry into the WTO. Our simulation results imply an increase in the skill premium in both the U.S. and China, and the GVC, i.e., specialization across stages, is critical to this outcome.
ER  -