Kiel Working Papers, Kiel Institute for World Economics
No 1831:
Trade, Education, and The Shrinking Middle Class
Emily Blanchard and Gerald Willmann
Abstract: We develop a new model of trade in which educational
institutions drive comparative advantage and determine the distribution of
human capital within and across countries. Our framework exploits a
multiplicity of sectors and the continuous support of human capital choices
to demonstrate that freer trade can induce crowding out of the middle
occupations towards the skill acquisition extremes in one country, and
simultaneous expansion of middle-income industries in another. Individual
gains from trade may be non-monotonic in workers' ability, and middle
ability agents can lose the most from trade liberalization. Comparing trade
and education policy, we find that targeted education subsidies are more
effective than tariffs as a means to preserve "middle class" jobs, while
uniform educational subsidies have no effect
Keywords: Trade and Education Policy, Skill Acquisition, Education, Income Distribution; (follow links to similar papers)
JEL-Codes: F11,; F13,; F15,; F16; (follow links to similar papers)
41 pages, February 2013
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