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The effect of trade on the demand for skill - evidence from the interstate highway system

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  • Michaels, Guy
Abstract
Since changes in trade openness are typically confounded with other factors, it has been difficult to identify the labor market consequences of increased international trade. The advent of the United States Interstate Highway System provides a unique policy experiment, which I use to identify the effect of reducing trade barriers on the relative demand for skilled labor. The Interstate Highway System was designed to connect major metropolitan areas, to serve national defense and to connect the United States to Canada and Mexico. As a consequence–though not an objective–many rural counties were also connected to the highway system. I find that these counties experienced an increase in trade-related activities, such as trucking and retail sales, by 7-10 percentage points per capita. Most significantly, by increasing trade the highways raised the relative demand for skilled manufacturing workers in counties with a high endowment of human capital and reduced it elsewhere, consistent with the predictions of the Heckscher-Ohlin model.

Suggested Citation

  • Michaels, Guy, 2007. "The effect of trade on the demand for skill - evidence from the interstate highway system," LSE Research Online Documents on Economics 3268, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:3268
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    More about this item

    Keywords

    Skill Premium; Trade; Highways.;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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