Creator: Kehoe, Timothy Jerome, 1953-, Ruhl, Kim J., and Steinberg, Joseph B. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 489 Abstract:
Since the early 1990s, as the United States borrowed heavily from the rest of the world, employment in the U.S. goods-producing sector has fallen. We construct a dynamic general equilibrium model with several mechanisms that could generate declining goods-sector employment: foreign borrowing, nonhomothetic preferences, and differential productivity growth across sectors. We find that only 15.1 percent of the decline in goods-sector employment from 1992 to 2012 stems from U.S. trade deficits; most of the decline is due to differential productivity growth. As the United States repays its debt, its trade balance will reverse, but goods-sector employment will continue to fall.
Keyword: Global imbalances, Structural change, and Real exchange rate Subject (JEL): F34 - International Lending and Debt Problems, O41 - One, Two, and Multisector Growth Models, and E13 - General Aggregative Models: Neoclassical