Table 3: IV estimates on the impact of export shocks on labor markets

|Dependent<br>variable:|∆Employment|∆Wage|∆# leaving|∆# entering|∆#<br>switching jobs|
|---|---|---|---|---|---|
||(1)|(2)|(3)|(4)|(5)|
|∆Exports|0.240|0.326|-0.996|0.372|0.495|
||(0.040)|(0.036)|(0.142)|(0.083)|(0.114)|
|Observations|3815|3815|3815|3815|3815|
|Year efects|Y|Y|Y|Y|Y|

_Notes_ : Table reports IV estimation results of equation (1) for the baseline estimation sample, using (2) as the instrument. For all variables in change, we take log before computing the first differences. All specifications are weighted by exports per worker in the labor market in 2003. Standard errors clustered by microregion and year are in parentheses.

Workers’ mobility decisions generate the dynamics of the model, while the trade part of the model determines static economic environments period by period.

# **3.1 Labor Mobility Model with an Endogenous Number of Job Options**

Consider an economy with a continuum of workers with mass _Lt_ at time _t_ .<sup>15</sup> Each worker is in a discrete state _k ∈{_ 1 _,_ 2 _, .., K}_ which is a region-sector labor market index.<sup>16</sup> The mass of workers in labor market _k_ at time _t_ is denoted as _L_<sup>_k_</sup> _t_<sup>with�</sup> _k_<sup>_L_</sup> _t_<sup>_k_=</sup><sup>_Lt_.Wedenote</sup><sup>_rk_astheregionofthelabor</sup> market _k_ and _sk_ as the sector of the labor market _k_ . The total number of regions in this economy is _R_ , and that of sectors is _S_ , both of which we assume to be fixed over time. In most papers in the literature on the dynamic discrete choice model of labor mobility, workers are assumed to choose a labor market directly.<sup>17</sup> On the other hand, we model worker’s problem as a choice of a _job_ .

**Jobs.** Before formally defining _job_ s, we must discuss several conceptual building blocks of the model. Production takes place by workers performing a set of _tasks_ . In each period, producers organize the implementation of tasks. Tasks are indexed with _τ ∈_ [0 _, Tt_<sup>_k_],where</sup><sup>_T k_</sup> _t_<sup>isthetotalmass</sup> of tasks implemented for production. We assume that workers are not directly assigned to tasks, but they are rather attached to _positions_ which are indexed with _ι_ , where _ι ∈_ [0 _,_ 1]. For simplicity, we imagine that “positions” are very detailed stylized occupations, without any hierarchy. For example, “weaving textile technician” and “spinning textile technician” are two different positions. Workers in these two different positions perform different day to day activities, i.e., different tasks.

To implement tasks for production, producers assign tasks to positions using a one-to-one and onto mapping (bijection) which is identical across producers within a labor market. As we discuss in depth later on, producers decide the optimal mass of tasks _Tt_<sup>_k_,whichcanchangeovertimeaseconomic</sup>

> 15We characterize the labor mobility model for an individual country and thus omit country index without loss of generality. The country index will be introduced when we characterize the multi-country trade part of the model.

> 16We denote a labor market with a single index _k_ instead of a pair of region and sector indices. This notation is particularly convenient when we estimate the model, because not all region-sector pairs are populated in the data.

> 17For example, in ACM, workers choose a sector, and the number of sectors they can choose from is exogenously fixed. In CDP, workers choose a region-sector pair from the fixed number of region-sector pairs.

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