Trade Policy, Human Capital, and Costly Worker Transitions

Accumulation of human capital, through formal education and on-the-job experience, shapes workers’ adjustment to job displacements after tariff reductions – whether they switch industries, become unemployed, or leave the labor force. We develop an economic model that uses individual-level longitudinal CPS data on the employment transitions of U.S. manufacturing workers to estimate prospective labor adjustments in response to hypothetical reductions in tariff rates on U.S. manufacturing imports. The simulation suggests that a worker’s observable human capital characteristics are important determinants of labor market outcomes following a trade policy change.