The research community
at the Institute includes
visiting scholars, consultants,
economists, research analysts,
and research assistants. These
scholars bring a diversity of
backgrounds, interests, and
expertise to research that
deepens our understanding
of economic opportunity
and inclusion as well as
policies that work to improve
Most economists agree that, on balance, free trade
benefits the U.S. economy. They also agree that it creates
winners and losers. Those who gain access to new markets
abroad thrive. Those undersold by overseas rivals suffer.
But that’s what happens at the start of a trade deal,
when businesses and workers are still adjusting, according
to Ricardo Reyes-Heroles, a senior economist with the
Federal Reserve Board of Governors. He wanted to know
what happens next. When new workers join the labor
force, surely they would look for work in thriving industries
and avoid declining ones?
Yes, they would, but inequality
among new workers means some
adjust faster to trade shocks than
others, according to an empirical
analysis and an economic model
he and two co-authors developed
based on trade between the U.S.
Because most U.S. industries
that thrive on trade with China require college degrees—
education and financial services, for example—young
workers are more likely to attend college after seeing how
trade affected their parents’ generation. But young workers
who can’t afford tuition will likely end up in low-wage
jobs for another generation.
“The wealth of your parents actually matters a lot,” said
Reyes-Heroles, who presented a paper describing the
project at the Institute’s fall mentoring workshop.
His model predicts that workers who missed out on
college will save so their children can go, allowing that
generation to finally gain from trade.
Growing up in Mexico City as the North American Free
Trade Agreement (NAFTA) went into effect, Reyes-Heroles
said he was exposed to discussions about trade
between his economist father and his father’s colleagues.
One of the inspirations for his latest paper is how NAFTA
was initially greeted in Mexico. People complained that
only border regions benefited from new factories, while
regions farther south lost farm jobs. By the time his generation
entered the labor force, though, few thought NAFTA
was a bad thing, he said.
It’s important to consider these multigenerational transitions,
Reyes-Heroles said. Looking at just one generation
makes it seem like the benefits of trade will never reach everyone.
It also obscures potential policies to limit hardship
for those suffering losses. One policy to consider, he said,
is subsidizing college tuition for those harmed by trade,
which could shorten the transition period by a generation.
More scholar spotlights from this issue