Date of Award

Spring 6-14-2026

Document Type

Thesis (Undergraduate)

Department

Economics

First Advisor

Douglas Irwin

Second Advisor

Bruce Sacerdote

Third Advisor

Elisabeth Curtis

Abstract

This paper examines the local labor market effects of tariff reductions under the U.S.-Korea Free Trade Agreement (KORUS). While free trade agreements are often evaluated through aggregate gains, their adjustment costs may be concentrated in specific industries and local labor markets. This paper constructs a shift-share measure of KORUS exposure by combining national industry-level tariff reductions with pre-KORUS commuting zone (CZ) industrial composition, then estimates how more exposed CZs changed after implementation. The results show that greater KORUS exposure is associated with statistically significant declines in employment, employment-to-population ratios, labor force participation, and working-age population, alongside increases in unemployment. These effects grow over time as tariff reductions phase in, suggesting gradual local adjustment rather than an immediate one-time response. Positive wage estimates among remaining employed workers appear alongside declining employment and labor force attachment, indicating that wage increases likely reflect compositional change or selection rather than broad labor market gains. The effects are also uneven across workers and sectors: employment and attachment losses are clearest among non-college workers, women, and U.S.-born workers, while sectoral results show significant declines in both tradeable and non-tradeable employment. Descriptive exposure analysis further shows that KORUS exposure is driven primarily by crop production rather than manufacturing or autos, with the crop production shock itself concentrated in a narrow set of specialty-product tariff lines. Finally, comparison with the China Shock shows that KORUS exposure is geographically and industrially distinct from earlier China-related import competition. Overall, the findings suggest that even trade liberalization with a high-income partner can generate localized labor market adjustment costs when tariff reductions interact with pre-existing regional specialization.

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