Finally, we quantify the effect of trade shocks on labor allocation, the number of job options, and workers’ welfare. Using the benchmark shock of a 20% decline in manufacturing trade costs from Brazil to its trading partners, we show that a positive manufacturing export shock reallocates labor toward the manufacturing and service sectors and increases internal mobility there. We show that the aggregate lifetime welfare increases in all labor markets from this shock, but workers in manufacturing on average experience 41.7% larger welfare increases compared to those in agriculture.

By comparing our baseline specification to the alternative one without the job options channel, we show that our main channel significantly magnifies welfare gains from a positive export shock. Our model can also shed light on predicting the potential benefit of a policy mitigating labor mobility frictions. We show that when workers face 20% lower mobility frictions both across regions and sectors, the welfare increase is 14.8% larger. Reduced mobility frictions across regions have a larger magnification effect compared to the reduced mobility costs across sectors.

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