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Globalization and Labour-Market Adjustment: How Fast and at What Cost?

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  • Davidson, Carl
  • Matusz, Steven J

Abstract

In this paper we argue that the flexibility of an economy's labour market plays a role in determining the gains from trade liberalization, the level of short-run adjustment costs, and the relative value of these two measures. To do so, we describe the model introduced in Davidson and Matusz (2000) which allows us to solve for adjustment costs when workers vary according to ability and jobs differ in terms of the skills that they require. We then report results based on simulations of this model. We find that economies with sluggish labour markets have the least to gain from liberalization. The reason is that while the removal of trade barriers creates large benefits, they are almost completely offset by large short-run adjustment costs. In contrast, we find that with either very flexible or very slothful labour market gains from liberalization are always significantly larger than the short-run adjustment costs. Copyright 2000 by Oxford University Press.

Suggested Citation

  • Davidson, Carl & Matusz, Steven J, 2000. "Globalization and Labour-Market Adjustment: How Fast and at What Cost?," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 16(3), pages 42-56, Autumn.
    • Handle: RePEc:oup:oxford:v:16:y:2000:i:3:p:42-56
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    Cited by:

    1. Meysut Saygili & Ralph Peters & Christian Knebel, 2018. "African Continental Free Trade Area: Challenges and Opportunities of Tariff Reductions," UNCTAD Blue Series Papers 82, United Nations Conference on Trade and Development.
    2. Holger Görg & Aoife Hanley, 2011. "Services Outsourcing And Innovation: An Empirical Investigation," Economic Inquiry, Western Economic Association International, vol. 49(2), pages 321-333, April.
    3. Ganeshan Wignaraja & Jens Krüger & Anna Mae Tuazon, 2013. "Production Networks, Profits, and Innovative Activity : Evidence from Malaysia and Thailand," Microeconomics Working Papers 23391, East Asian Bureau of Economic Research.
    4. repec:ilo:ilowps:469183 is not listed on IDEAS
    5. Stone, Susan & van Tongeren, Frank, 2013. "Trade Model Development at the OECD," Conference papers 332408, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    6. Ornelas, Emanuel, 2012. "Preferential trade agreements and the labor market," LSE Research Online Documents on Economics 121752, London School of Economics and Political Science, LSE Library.
    7. Dr Kaniz Siddique, 2003. "Deceleration in the Export Sector of Bangladesh and Women Workers: Assessing Impacts and Identifying Coping Strategies," CPD Working Paper 26, Centre for Policy Dialogue (CPD).
    8. Alan S. Blinder, 2007. "Offshoring: Big Deal or Business as Usual?," Working Papers 2007-6, Princeton University. Economics Department..
    9. Dorothee Flaig & Harald Grethe & Scott McDonald & Khalid Siddig, 2012. "Intersectoral factor movements: do adjustment costs matter for welfare?," EcoMod2012 4418, EcoMod.
    10. Steven J. Matusz, 2001. "Trade Policy Reform and Labor Market Dynamics: Issues and an Agenda for Future Research," Economics Study Area Working Papers 24, East-West Center, Economics Study Area.
    11. Bernard Hoekman, 2004. "Policies Facilitating Firm Adjustment to Globalization," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 20(3), pages 457-473, Autumn.
    12. Porto, Guido, 2012. "The cost of adjustment to green growth policies : lessons from trade adjustment costs," Policy Research Working Paper Series 6237, The World Bank.
    13. Rossana Patrón, 2012. "Short-term specificity and training: Key issues for economic restructuring," Documentos de Trabajo (working papers) 0212, Department of Economics - dECON.
    14. Artuc, Erhan & Lederman, Daniel & Porto, Guido, 2013. "A mapping of labor mobility costs in developing countries," Policy Research Working Paper Series 6556, The World Bank.
    15. Artuc, Erhan & Lederman, Daniel & Porto, Guido, 2015. "A mapping of labor mobility costs in the developing world," Journal of International Economics, Elsevier, vol. 95(1), pages 28-41.
    16. Osman, Rehab Osman Mohamed, 2012. "The EU Economic Partnership Agreements with Southern Africa: a computable general equilibrium analysis," Economics PhD Theses 0412, Department of Economics, University of Sussex Business School.
    17. Bacchetta, Marc & Jansen, Marion, 2003. "Adjusting to trade liberalization: The role of policy, institutions and WTO Disciplines," WTO Special Studies, World Trade Organization (WTO), Economic Research and Statistics Division, volume 7, number 7.
    18. Rod Falvey & David Greenaway & Joana Silva, 2018. "International competition, returns to skill and labour market adjustment," The World Economy, Wiley Blackwell, vol. 41(4), pages 1000-1024, April.
    19. Stone, Susan F. & Bottini, Novella, 2012. "Global Production Networks: Labour Market Implications and Policy Challenges," Conference papers 332246, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    20. R J R Elliott & J Lindley, 2003. "Trade, Skills and Adjustment Costs: A Study of Intra-Sectoral Labour Mobility in the UK," Economics Discussion Paper Series 0312, Economics, The University of Manchester.
    21. Holger Görg & Aoife Hanley, 2007. "International Services Outsourcing and Innovation: An Empirical Investigation," Discussion Papers 07/43, University of Nottingham, GEP.

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