Trade with nominal rigidities: understanding the unemployment and welfare effects of the China shock

Rodríguez-Clare, Andrés, Ulate, Mauricio and Vasquez, Jose ORCID: 0009-0003-7880-8747 (2025) Trade with nominal rigidities: understanding the unemployment and welfare effects of the China shock. Journal of Political Economy. ISSN 0022-3808 (In Press)

Text (RUV) - Accepted Version Pending embargo until 1 January 2100. Available under License Creative Commons Attribution. Download (1MB)

Abstract

We present a dynamic quantitative trade and migration model that incorporates downward nominal wage rigidities and show how this framework can generate changes in unemployment and labor participation that match those uncovered by the empirical literature studying the “China shock.” We find that the China shock leads to average welfare increases in most U.S. states, including many that experience unemployment during the transition. However, nominal rigidities reduce the overall U.S. gains by around two thirds. In addition, there are 18 states that experience welfare losses in the presence of downward nominal wage rigidity that would have experienced gains without it.

Item Type:	Article
Additional Information:	© 2025 The Author(s)
Divisions:	Management
Subjects:	H Social Sciences > HD Industries. Land use. Labor J Political Science H Social Sciences > HB Economic Theory
Date Deposited:	25 Mar 2025 10:42
Last Modified:	25 Mar 2025 10:45
URI:	http://eprints.lse.ac.uk/id/eprint/127629

Actions (login required)

View Item