The Winners and Losers from Trade
Trade can affect households differently depending on their position in the labor market and the pattern of their consumption expenditures. In a recent Economic Commentary, Cleveland Fed researchers Daniel Carroll and Sewon Hur examine how the consequences of international trade are distributed across households through two primary channels, adjustments in the labor market and reductions in prices of goods and services.
“We find that the effects of trade on the labor market and the effects of trade on prices go in opposite directions and are of similar magnitude,” say Carroll and Hur. “Lower-income households, though possibly more exposed to the labor market costs, benefit more than do higher-income households from the reduction in prices that trade induces.”
According to the researchers, the price effects from trade are not shared equally across households, because households of different incomes purchase different bundles of goods and services. By documenting that the share of consumption expenditures that are tradable is higher for households with low income and wealth, Carroll and Hur find that these households benefit more from lower prices.
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