theoretical and empirical implications: since trade shocks impact the size of the choice set, this new mechanism matters for workers’ mobility and welfare; and also fundamentally changes how we should conceptualize the impact of trade shocks on workers.

The new channel we emphasize matters to workers for two main reasons. First, if a worker can choose her job out of more options, it is more likely that the best one delivers higher welfare. Second, even when she is hit by a negative labor demand shock in the future, it is more likely that she will be able to find another job without having to move to a different region or sector. Thus, a regionsector pair (henceforth referred to as a _labor market_ ) receiving a positive trade shock will attract more workers not just because it provides a higher wage, but also because of the larger number of job options that are created there.

In addition, a labor market with a positive trade shock will experience larger internal churning, i.e., more job switching within the labor market, which has been largely overlooked in the literature. Our model clearly shows how trade shocks affect workers’ welfare through labor mobility between and within labor markets. The model delivers a structural equation of trade-induced changes in workers’ welfare, which can be conveniently estimated in a reduced-form way. We then quantify the magnitude of the welfare effect of a trade shock through the full simulation of the model.

Our framework is motivated by reduced-form evidence on the effects of export shocks on labor market outcomes, which draws on rich employer-employee panel data combined with customs records on export transactions from Brazil during 2003-2015. To account for the endogeneity of exports, we construct an instrument at the labor market level, exploiting exogenous variation in sectoral import demand directed to the labor market. The IV estimates reveal a positive causal effect of exports on residual wages, employment, worker inflows, and job turnover rates within the corresponding labor market. The effect on the internal job turnover rates is the key motivation for our framework.

Building on this reduced-form evidence, we develop a new dynamic general equilibrium model of labor mobility with an endogenous number of choices. Different labor markets offer different wages and different numbers of job options. A worker chooses the job which gives her the highest utility, where the number of job options in each labor market is endogenously determined. This is a distinctive feature of our framework compared to previous discrete choice models which effectively assume that the number of choices is exogenously fixed and the same across labor markets.

Our general equilibrium framework shows that a positive trade shock to a certain labor market– e.g., a decline in the cost of exporting–increases the number of job options in the market. Workers attach idiosyncratic utility to each job option, and thus more options lead to a higher utility from the best job. In addition, workers in a growing labor market face a lower risk of having to pay a higher switching cost in the future, as we assume that a job switch requiring a change of labor market incurs a higher switching cost than a job switch within a labor market. The prospect of a job switch generates an option value in workers’ welfare. We further decompose this option value into the option 2