Journal Article

Trade, Education, and the Shrinking Middle Class


  • Blanchard
  • E.
  • Willmann
  • G.
Publication Date

We develop a novel model of trade in which educational institutions drive comparative advantage and determine the distribution of human capital within and across countries. Our framework exploits a multiplicity of sectors and continuous support of possible human capital choices in our framework to demonstrate that freer trade can induce crowding out of the middle occupations towards the skill acquisition extremes in one country and simultaneous expansion of middle-income industries in another. Individual gains from trade may be non-monotonic in workers' ability, and middle ability agents can lose the most from trade liberalization. Endogenizing trade and education policy, we find that targeted education subsidies are more effective than tariffs as a means to preserve "middle class" jobs, while uniform educational subsidies are of little consequence.

Kiel Institute Expert


JEL Classification
F11, F13, F15, F16

Key Words

  • Education
  • income distribution
  • Skill Acquisition
  • Trade and Education Policy