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Delay and Dynamics in Labor Market Adjustment: Simulation Results

Author

Listed:
  • Erhan Artuç

    (Department of Economics, Koç University)

  • Shubham Chaudhuri

    (East Asia and Pacific Poverty Reduction and Economic Management Department, The World Bank)

  • John McLaren

    (University of Virginia)

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

  • Erhan Artuç & Shubham Chaudhuri & John McLaren, 2007. "Delay and Dynamics in Labor Market Adjustment: Simulation Results," Koç University-TUSIAD Economic Research Forum Working Papers 0703, Koc University-TUSIAD Economic Research Forum.
    • Handle: RePEc:koc:wpaper:0703
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    JEL classification:

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

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