Barriers to trade lead to significant distortions in domestic prices and cause an inefficient allocation of resources across sectors. An expected outcome of a trade reform is a significant sectoral reallocation of labor in the economy. The amount and speed of the reallocation, however, will also depend on the particular characteristics of the labor market - a flexible labor market will facilitate the required reallocation of labor while a highly restrictive labor market will slow it down. This paper studies the effect of firing costs on the performance of an economy that implements a trade liberalization reform. I find that if Chile did not liberalize its labor market at the outset of its trade reform, then the intersectoral reallocation of workers would have been considerably slower and as much as one third of the actual benefits from the trade reform would have been lost. From a policy standpoint, the results imply that trade liberalization reforms are desirable but need to be complemented by labor market reforms in order to be successful
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number
476.
Length: Date of creation: 2004 Date of revision: Handle: RePEc:red:sed004:476
Contact details of provider: Postal: Society for Economic Dynamics Anne Stubing CV Starr Center for Applied Economics 269 Mercer Street, Room 303 New York University New York, NY 10003 Fax: 1-860-486-4463 Email: Web page: http://www.EconomicDynamics.org/society.htm More information through EDIRC
For technical questions regarding this item, or to correct its listing, contact: (Christian Zimmermann).