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Delay and dynamics in labor market adjustment: Simulation results

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  • Artuç, Erhan
  • Chaudhuri, Shubham
  • McLaren, John

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.

Suggested Citation

  • Artuç, Erhan & Chaudhuri, Shubham & McLaren, John, 2008. "Delay and dynamics in labor market adjustment: Simulation results," Journal of International Economics, Elsevier, vol. 75(1), pages 1-13, May.
  • Handle: RePEc:eee:inecon:v:75:y:2008:i:1:p:1-13
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    More about this item

    Keywords

    Labor mobility Gross flows Net flows Gradualism Trade shocks Trade liberalization;

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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