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Delay and dynamics in labor market adjustment: Simulation results

  • Shubham Chaudhuri

    ()

    (Department of Economics, Columbia University)

  • Erhan Artuç

    ()

    (University of Virginia)

  • John McLaren

    ()

    (Columbia University - Department of Economics)

We study numerical simulations of a standard trade model with labor mobility costs added, modeled in such a way as to generate gross flows in excess of net flows. We find that adjustment to a trade shock can take a long time with plausible values of parameter values. In our base case, for the economy to move 95% of the distance to the new steady state takes well over a decade. 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 a constituency for free trade, but it can also destroy one. We study the conditions under which these two different outcomes occur.

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File URL: http://www.econ.columbia.edu/RePEc/pdf/DP0304-07.pdf
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Paper provided by Columbia University, Department of Economics in its series Discussion Papers with number 0304-07.

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Length: 43 pages
Date of creation: 2003
Date of revision:
Handle: RePEc:clu:wpaper:0304-07
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