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Delay and Dynamics in Labor Market Adjustment: Simulation Results

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  • Erhan Artuç

    ()
    (Department of Economics, Koç University)

  • Shubham Chaudhuri

    (East Asia and Pacific Poverty Reduction and Economic Management Department, The World Bank)

  • John McLaren

    (University of Virginia)

Abstract

We simulate numerically a trade model with labor mobility costs added, modeled in such a way as to generate gross flows in excess of net flows. Adjustment to a trade shock can be slow with plausible parameter values. In our base case, the economy moves 95% of the distance to the new steady state in approximately eight years. 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 – or destroy – a constituency for free trade. We study the conditions under which these contrasting outcomes occur.

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Bibliographic Info

Paper provided by Koc University-TUSIAD Economic Research Forum in its series Koç University-TUSIAD Economic Research Forum Working Papers with number 0703.

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Length: 34 pages
Date of creation: Jan 2007
Date of revision:
Handle: RePEc:koc:wpaper:0703

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Keywords: Labor Mobility; Gross Flows; Delayed Trade Liberalization;

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  1. Davidson, Carl & Martin, Lawrence & Matusz, Steven, 1999. "Trade and search generated unemployment," Journal of International Economics, Elsevier, vol. 48(2), pages 271-299, August.
  2. 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.
  3. 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.
  4. 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.
  5. Dehejia, Vivek, 1997. "Will Gradualism Work When Shock Therapy Doesn't?," CEPR Discussion Papers 1552, C.E.P.R. Discussion Papers.
  6. 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.
  7. Robert C. Feenstra & Tracy R. Lewis, 1991. "Trade Adjustment Assistance and Pareto Gains From Trade," NBER Working Papers 3845, National Bureau of Economic Research, Inc.
  8. 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..
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Citations

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Cited by:
  1. Erhan Artuç & John McLaren, 2012. "Trade Policy and Wage Inequality: A Structural Analysis with Occupational and Sectoral Mobility," NBER Working Papers 18503, National Bureau of Economic Research, Inc.
  2. Erhan Artu� & Shubham Chaudhuri & John McLaren, 2010. "Trade Shocks and Labor Adjustment: A Structural Empirical Approach," American Economic Review, American Economic Association, vol. 100(3), pages 1008-45, June.
  3. Rod Falvey & David Greenaway & Joana Silva, . "Trade Liberalisation and Human Capital Adjustment," Discussion Papers 10/08, University of Nottingham, GEP.
  4. 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.
  5. Harrison, Ann & McLaren, John & McMillan, Margaret S., 2010. "Recent findings on trade and inequality:," IFPRI discussion papers 1047, International Food Policy Research Institute (IFPRI).
  6. Ornelas, Emanuel, 2012. "Preferential Trade Agreements and the Labor Market," CEPR Discussion Papers 8805, C.E.P.R. Discussion Papers.
  7. 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.
  8. 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.
  9. Harrison, Ann & McLaren, John & McMillan, Margaret, 2011. "Recent perspectives on trade and inequality," Policy Research Working Paper Series 5754, The World Bank.
  10. Devashish Mitra & Priya Ranjan, 2009. "Offshoring and Unemployment: The Role of Search Frictions and Labor Minority," Working Papers id:2071, eSocialSciences.
  11. 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).
  12. Erhan Artuc, 2009. "Intergenerational Effects of Trade Liberalization," 2009 Meeting Papers 870, Society for Economic Dynamics.
  13. 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.
  14. John McLaren & Shushanik Hakobyan, 2010. "Looking for Local Labor Market Effects of NAFTA," NBER Working Papers 16535, National Bureau of Economic Research, Inc.
  15. 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.

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