Trade, Human Capital and Labour Market Adjustment

This paper highlights the way in which workers of different age and ability are affected by trade liberalisation. A general-equilibrium model of trade and human-capital is constructed. Individuals differ not only in their endogenous education-level but also in their exogenous age. They can, at any point in their lives, skill-upgrade through (costly) schooling. Trade-adjustment is analyzed as a problem in investment-theory. We find that adjustment can take a long time and older-workers differ from younger-workers in the proportion of population negatively affected and severity of losses. Results suggest that trade-adjustment-assistance should focus on older-unskilled-workers in skilled-abundant-countries and younger-skilled-workers in unskilled-labour-abundant-countries