Schooled by Trade? Retraining and Import Competition

Retraining is a policy tool that can help workers displaced by import competition, but there is surprisingly little work in economics on retraining and trade adjustment. Using administrative data from Germany, a highly open economy with extensive government-subsidized retraining programs, we provide evidence that workers retrain in response to import competition. To understand how retraining changes the gains from trade, we present a search model in which heterogeneous workers may choose to retrain while unemployed. In our empirical calibration, retraining increases the gains from trade by 7% in the aggregate. Some worker groups gain five times as much, while others gain virtually nothing