Occupational choice and development

The rise in world trade since 1970 has raised international mobility of labor services. We study the effect of such a globalization of the world’s labor markets. We find that when people can choose between wage work and managerial work, the output gains are U-shaped: A worldwide labor market raises output by more in the rich and the poor countries, and by less in the middle-income countries. This is because the middle-income countries experience the smallest change in the factor-price ratio, and where the option to choose between wage work and managerial work has the least value in the integrated economy. Our theory also establishes that after economic integration, the high skill countries see a disproportionate increase in managerial occupations. Using aggregate data on GDP, openness and occupations from 115 countries, we find evidence for these patterns of occupational choice. ∗We thank Jonathan Eaton, Natalia Ramondo, Esteban Rossi-Hansberg, Ariell Resheff, Chad Syverson and Akiko Tamura for comments and the NSF for support. Eeckhout thanks the department of economics at NYU Stern for its hospitality. †Eeckhout: Department of Economics, UPenn, [email protected]; Jovanovic: Department of Economics, NYU, [email protected].