Globalization and Labour-Market Adjustment: How Fast and at What Cost?
AbstractIn 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.
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Bibliographic InfoArticle provided by Oxford University Press in its journal Oxford Review of Economic Policy.
Volume (Year): 16 (2000)
Issue (Month): 3 (Autumn)
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- Bernard Hoekman, 2004.
"Policies Facilitating Firm Adjustment to Globalization,"
Oxford Review of Economic Policy,
Oxford University Press, vol. 20(3), pages 457-473, Autumn.
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- Rossana Patrón, 2012. "Short-term specificity and training: Key issues for economic restructuring," Documentos de Trabajo (working papers) 0212, Department of Economics - dECON.
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