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Delay and dynamics in labor market adjustment: Simulation results

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  • Shubham Chaudhuri

    ()
    (Department of Economics, Columbia University)

  • Erhan Artuç

    ()
    (University of Virginia)

  • John McLaren

    ()
    (Columbia University - Department of Economics)

Abstract

We study numerical simulations of a standard trade model with labor mobility costs added, modeled in such a way as to generate gross flows in excess of net flows. We find that adjustment to a trade shock can take a long time with plausible values of parameter values. In our base case, for the economy to move 95% of the distance to the new steady state takes well over a decade. Gross flows have a large effect on this rate of adjustment and on the normative effects of trade. Announcing and delaying the liberalization can build a constituency for free trade, but it can also destroy one. We study the conditions under which these two different outcomes occur.

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Bibliographic Info

Paper provided by Columbia University, Department of Economics in its series Discussion Papers with number 0304-07.

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Length: 43 pages
Date of creation: 2003
Date of revision:
Handle: RePEc:clu:wpaper:0304-07

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  1. Karp, Larry & Paul, Thierry, 1993. "Phasing in and Phasing Out Protectionism with Costly Adjustment of Labour," CEPR Discussion Papers 856, C.E.P.R. Discussion Papers.
  2. Bond, Eric W & Park, Jee-Hyeong, 2002. "Gradualism in Trade Agreements with Asymmetric Countries," Review of Economic Studies, Wiley Blackwell, vol. 69(2), pages 379-406, April.
  3. Vivek H. Dehejia, 1995. "Will Gradualism Work When Shock Therapy Doesn't?," Carleton Economic Papers 95-08, Carleton University, Department of Economics.
  4. Mussa, Michael, 1974. "Tariffs and the Distribution of Income: The Importance of Factor Specificity, Substitutability, and Intensity in the Short and Long Run," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1191-1203, Nov.-Dec..
  5. Feenstra, Robert C. & Lewis, Tracy R., 1994. "Trade adjustment assistance and Pareto gains from trade," Journal of International Economics, Elsevier, vol. 36(3-4), pages 201-222, May.
  6. Davidson, Carl & Martin, Lawrence & Matusz, Steven, 1999. "Trade and search generated unemployment," Journal of International Economics, Elsevier, vol. 48(2), pages 271-299, August.
  7. Dixit Avinash & Rob Rafael, 1994. "Switching Costs and Sectoral Adjustments in General Equilibrium with Uninsured Risk," Journal of Economic Theory, Elsevier, vol. 62(1), pages 48-69, February.
  8. Mussa, Michael, 1978. "Dynamic Adjustment in the Heckscher-Ohlin-Samuelson Model," Journal of Political Economy, University of Chicago Press, vol. 86(5), pages 775-91, October.
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Cited by:
  1. John McLaren & Shushanik Hakobyan, 2010. "Looking for Local Labor Market Effects of NAFTA," NBER Working Papers 16535, National Bureau of Economic Research, Inc.
  2. 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.
  3. Falvey, Rod & Greenaway, David & Silva, Joana, 2010. "Trade liberalisation and human capital adjustment," Journal of International Economics, Elsevier, vol. 81(2), pages 230-239, July.
  4. 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.
  5. Erhan Artuç & Daniel Lederman & Guido Porto, 2013. "A Mapping of Labor Mobility Costs in the Developing World," CEDLAS, Working Papers 0146, CEDLAS, Universidad Nacional de La Plata.
  6. Harrison, Ann & McLaren, John & McMillan, Margaret, 2011. "Recent perspectives on trade and inequality," Policy Research Working Paper Series 5754, The World Bank.
  7. Devashish Mitra & Priya Ranjan, 2009. "Offshoring and Unemployment: The Role of Search Frictions and Labor Minority," Working Papers id:2071, eSocialSciences.
  8. Erhan Artuc & Shubham Chaudhuri & John McLaren, 2007. "Trade Shocks and Labor Adjustment: A Structural Empirical Approach," NBER Working Papers 13465, National Bureau of Economic Research, Inc.
  9. Erhan Artuç, 2009. "Intergenerational Effects of Trade Liberalization," Koç University-TUSIAD Economic Research Forum Working Papers 0913, Koc University-TUSIAD Economic Research Forum.
  10. Mitra, Devashish & Ranjan, Priya, 2010. "Offshoring and unemployment: The role of search frictions labor mobility," Journal of International Economics, Elsevier, vol. 81(2), pages 219-229, July.
  11. Emanuel Ornelas, 2012. "Preferential Trade Agreements and the Labor Market," CEP Discussion Papers dp1117, Centre for Economic Performance, LSE.
  12. Ann Harrison & John McLaren & Margaret S. McMillan, 2010. "Recent Findings on Trade and Inequality," NBER Working Papers 16425, National Bureau of Economic Research, Inc.
  13. Mitra, Devashish & Ranjan, Priya, 2009. "Offshoring and Unemployment: The Role of Search Frictions and Labor Mobility," IZA Discussion Papers 4136, Institute for the Study of Labor (IZA).
  14. Pamela Coke Hamilton & Yvonne Tsikata & Emmanuel Pinto Moreira, 2009. "Accelerating Trade and Integration in the Caribbean : Policy Options for Sustained Growth, Job Creation, and Poverty Reduction," World Bank Publications, The World Bank, number 2652, August.
  15. Artuc, Erhan & McLaren, John, 2012. "Trade policy and wage inequality : a structural analysis with occupational and sectoral mobility," Policy Research Working Paper Series 6194, The World Bank.

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