Labor Market Outcomes Under Tariff Cuts and Individual Higher Education Choices

ABSTRACT This paper examines the effect of tariff cuts on labor market outcomes within a multi‐country, multisector general equilibrium framework. Individuals self‐assess the feasibility of earning a college degree when deciding whether to pursue higher education. Goods are produced using skilled labor, unskilled labor, and materials aggregated from domestically and internationally sourced intermediate goods. I provide a novel finding that tariff cuts can make education more affordable by reducing the prices of materials used in education production. A lower education price exerts upward pressure on the skilled labor supply, thereby placing downward pressure on the skill premium. Changes in the trade deficit following tariff cuts significantly influence the welfare response.