Trade and Welfare (across Local Labor Markets)
February 2026
Working Paper Number:
CES-26-16
Abstract
What are the welfare implications of trade shocks? Theoretically, we provide a sufficient statistic that measures changes in welfare (to a first-order approximation) for the set of workers who start within a region, taking into account adjustment in frictional unemployment, labor force participation, the sectors to which workers apply for jobs, and the regions in which workers choose to live. Our theory is flexible; for instance, it allows for arbitrary heterogeneity in worker productivity and non-pecuniary returns (amenities) across unemployment, labor force non-participation, sectors, and regions. Empirically, we apply these insights to measure changes in welfare between 2000-2007 across workers who start in different commuting zones (CZs) in the U.S. in the year 2000. Finally, we identify the differential impact across CZs of a particular trade shock: granting China permanent normal trade relations.
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macroeconomic,
export,
employ,
employed,
labor,
tariff,
shift,
heterogeneity,
workforce,
worker,
region,
regressing,
gdp,
welfare,
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unemployed,
compensation,
impact employment,
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employment distribution
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Ordinary Least Squares,
Longitudinal Business Database,
Department of Labor,
North American Industry Classification System,
American Community Survey,
Longitudinal Employer Household Dynamics,
World Trade Organization
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