Intra-industry trade as an indicator of labor market adjustment

Intra-Industry Trade as an Indicator of Labor Market Adjustment. - A growing body of recent empirical research uses measures of change in intra-industry trade as indicators of labor market adjustment. In this paper, we argue that the theoretical foundations for this work are problematic. To make this argument we develop a simple model with both inter- and intra-industry trade and adjustment. We find that changes in domestic absorption, which influence trade flows but which are distinct from production changes, make changes in IIT an unreliable guide to labor market pressure.