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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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  8. Shubham Chaudhuri & John McLaren, 2007. "Some Simple Analytics of Trade and Labor Mobility," NBER Working Papers 13464, National Bureau of Economic Research, Inc.
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Cited by:
  1. 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.
  2. Jeffrey Thompson, 2011. "Costly Migration and the Incidence of State and Local Taxes," Working Papers, Political Economy Research Institute, University of Massachusetts at Amherst wp251, Political Economy Research Institute, University of Massachusetts at Amherst.
  3. Erhan Artu� & Shubham Chaudhuri & John McLaren, 2010. "Trade Shocks and Labor Adjustment: A Structural Empirical Approach," American Economic Review, American Economic Association, American Economic Association, vol. 100(3), pages 1008-45, June.
  4. Moritz Ritter, . "Offshoring and occupational specificity of human capital," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics.
  5. Emanuel Ornelas, 2012. "Preferential Trade Agreements and the Labor Market," CEP Discussion Papers dp1117, Centre for Economic Performance, LSE.
  6. Harrison, Ann & McLaren, John & McMillan, Margaret S., 2010. "Recent findings on trade and inequality:," IFPRI discussion papers, International Food Policy Research Institute (IFPRI) 1047, International Food Policy Research Institute (IFPRI).
  7. 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.
  8. 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.
  9. Ann Harrison & John McLaren & Margaret McMillan, 2011. "Recent Perspectives on Trade and Inequality," Annual Review of Economics, Annual Reviews, Annual Reviews, vol. 3(1), pages 261-289, 09.
  10. Shubham Chaudhuri & John McLaren, 2007. "Some Simple Analytics of Trade and Labor Mobility," NBER Working Papers 13464, National Bureau of Economic Research, Inc.

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