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Some Simple Analytics of Trade and Labor Mobility

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  • Shubham Chaudhuri
  • John McLaren

Abstract

We study a simple, tractable model of labor adjustment in a trade model that allows us to analyze the economy's dynamic response to trade liberalization. Since it is a neoclassical market-clearing model, we can use duality techniques to study the equilibrium, and despite its simplicity a rich variety of properties emerge. The model generates gross flows of labor across industries, even in the steady state; persistent wage differentials across industries; gradual adjustment to a liberalization; and anticipatory adjustment to a pre-announced liberalization. Pre-announcement makes liberalization less attractive to export-sector workers and more attractive to import-sector workers, eventually making workers unanimous either in favor of or in opposition to liberalization. Based on these results, we identify many pitfalls to conventional methods of empirical study of trade liberalization that are based on static models.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13464.

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Date of creation: Oct 2007
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Handle: RePEc:nbr:nberwo:13464

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  1. Topel, Robert H, 1986. "Local Labor Markets," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(3), pages S111-43, June.
  2. Davidson, Carl & Martin, Lawrence & Matusz, Steven, 1999. "Trade and search generated unemployment," Journal of International Economics, Elsevier, Elsevier, vol. 48(2), pages 271-299, August.
  3. 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.
  4. Rappaport, Jordan, 2004. "Why are population flows so persistent?," Journal of Urban Economics, Elsevier, vol. 56(3), pages 554-580, November.
  5. 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.
  6. Jovanovic, Boyan & Moffitt, Robert, 1990. "An Estimate of a Sectoral Model of Labor Mobility," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 98(4), pages 827-52, August.
  7. Caroline L. Freund & John McLaren, 1999. "On the dynamics of trade diversion: evidence from four trade blocs," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 637, Board of Governors of the Federal Reserve System (U.S.).
  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, University of Chicago Press, vol. 82(6), pages 1191-1203, Nov.-Dec..
  9. Dixit Avinash & Rob Rafael, 1994. "Switching Costs and Sectoral Adjustments in General Equilibrium with Uninsured Risk," Journal of Economic Theory, Elsevier, Elsevier, vol. 62(1), pages 48-69, February.
  10. Karp, Larry S. & Paul, Thierry, 1993. "Phasing In And Phasing Out Protectionism With Costly Adjustments Of Labour," Working Papers, International Agricultural Trade Research Consortium 51112, International Agricultural Trade Research Consortium.
  11. Carl Davidson & Steven J. Matusz, 2004. "International Trade and Labor Markets: Theory, Evidence, and Policy Implications," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, W.E. Upjohn Institute for Employment Research, number itlm.
  12. Dehejia, Vivek, 1997. "Will Gradualism Work When Shock Therapy Doesn't?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1552, C.E.P.R. Discussion Papers.
  13. Stephen Cameron & Shubham Chaudhuri & John McLaren, 2007. "Trade Shocks and Labor Adjustment: Theory," NBER Working Papers 13463, National Bureau of Economic Research, Inc.
  14. Matsuyama, Kiminori, 1992. "A Simple Model of Sectoral Adjustment," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 59(2), pages 375-88, April.
  15. Olivier Jean Blanchard & Lawrence F. Katz, 1992. "Regional Evolutions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1), pages 1-76.
  16. Mussa, Michael, 1978. "Dynamic Adjustment in the Heckscher-Ohlin-Samuelson Model," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 86(5), pages 775-91, October.
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Cited by:
  1. Costinot, Arnaud, 2008. "Jobs, Jobs, Jobs: A "New" Perspective on Protectionism," University of California at San Diego, Economics Working Paper Series, Department of Economics, UC San Diego qt1cp9749b, Department of Economics, UC San Diego.
  2. 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.
  3. Matthew J. Notowidigdo, 2011. "The Incidence of Local Labor Demand Shocks," NBER Working Papers 17167, National Bureau of Economic Research, Inc.
  4. Stephen Cameron & Shubham Chaudhuri & John McLaren, 2007. "Trade Shocks and Labor Adjustment: Theory," NBER Working Papers 13463, National Bureau of Economic Research, Inc.
  5. 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.
  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. Mariya Mileva & Sebastian Braun & Wolfgang Lechthaler, 2013. "The Effects of Globalization on Wage Inequality: New Insights from a Dynamic Trade Model with Heterogeneous Firms," WWWforEurope Working Papers series, WWWforEurope 49, WWWforEurope.
  8. 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.

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