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Trade Shocks and Labor Adjustment: Theory

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  • Stephen Cameron
  • Shubham Chaudhuri
  • John McLaren

Abstract

We construct a dynamic, stochastic rational expectations model of labor reallocation within a trade model that is designed so that its key parameters can be estimated for trade policy analysis. A key feature is the presence of time-varying idiosyncratic moving costs faced by workers. As a consequence of these shocks: (i) Gross flows exceed net flows (an important feature of empirical labor movements); (ii) the economy features gradual and anticipatory adjustment to aggregate shocks; (iii) wage differentials across locations or industries can persist in the steady state; and (iv) the normative implications of policy can be very different from a model without idiosyncratic shocks, even when the aggregate behaviour of both models is similar. It is shown that the equilibrium solves a particular planner's problem, thus facilitating analytical results, econometric estimation, and simulation of the model for policy analysis.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13463.

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Date of creation: Oct 2007
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Publication status: published as "Trade Shocks and Labor Adjustment: A Structural Empirical Approach.” Joint with Erhan Artuç and Shubham Chaudhuri. American Economic Review, June 2010.
Handle: RePEc:nbr:nberwo:13463

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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. Jeffrey Thompson, 2011. "Costly Migration and the Incidence of State and Local Taxes," Working Papers wp251, Political Economy Research Institute, University of Massachusetts at Amherst.
  3. Ann Harrison & John McLaren & Margaret S. McMillan, 2010. "Recent Findings on Trade and Inequality," NBER Working Papers 16425, National Bureau of Economic Research, Inc.
  4. Moritz Ritter, 2012. "Offshoring and Occupational Specificity of Human Capital," DETU Working Papers 1207, Department of Economics, Temple University.
  5. Ann Harrison & John McLaren & Margaret McMillan, 2011. "Recent Perspectives on Trade and Inequality," Annual Review of Economics, Annual Reviews, vol. 3(1), pages 261-289, 09.
  6. 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.
  7. Emanuel Ornelas, 2012. "Preferential Trade Agreements and the Labor Market," CEP Discussion Papers dp1117, Centre for Economic Performance, LSE.
  8. Shubham Chaudhuri & John McLaren, 2007. "Some Simple Analytics of Trade and Labor Mobility," NBER Working Papers 13464, National Bureau of Economic Research, Inc.
  9. 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.
  10. Kaplan, David S. & Lederman, Daniel & Robertson, Raymond, 2012. "What drives short-run labor market volatility in offshoring industries ? evidence from northern Mexico during 2007-2009," Policy Research Working Paper Series 6268, The World Bank.

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