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Some Simple Analytics of Trade and Labor Mobility


  • Shubham Chaudhuri
  • John McLaren


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.

Suggested Citation

  • Shubham Chaudhuri & John McLaren, 2007. "Some Simple Analytics of Trade and Labor Mobility," NBER Working Papers 13464, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:13464
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    References listed on IDEAS

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    Cited by:

    1. Ann Harrison & John McLaren & Margaret McMillan, 2011. "Recent Perspectives on Trade and Inequality," Annual Review of Economics, Annual Reviews, vol. 3(1), pages 261-289, September.
    2. Arnaud Costinot, 2009. "Jobs, Jobs, Jobs: A "New" Perspective on Protectionism," Journal of the European Economic Association, MIT Press, vol. 7(5), pages 1011-1041, September.
    3. Matthew J. Notowidigdo, 2011. "The Incidence of Local Labor Demand Shocks," NBER Working Papers 17167, National Bureau of Economic Research, Inc.
    4. Harrison, Ann & McLaren, John & McMillan, Margaret S., 2010. "Recent findings on trade and inequality:," IFPRI discussion papers 1047, International Food Policy Research Institute (IFPRI).
    5. 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.
    6. Artuc, Erhan & Lederman, Daniel & Porto, Guido, 2015. "A mapping of labor mobility costs in the developing world," Journal of International Economics, Elsevier, vol. 95(1), pages 28-41.
    7. Artuç, Erhan & McLaren, John, 2015. "Trade policy and wage inequality: A structural analysis with occupational and sectoral mobility," Journal of International Economics, Elsevier, vol. 97(2), pages 278-294.
    8. 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 49, WWWforEurope.
    9. Stephen Cameron & Shubham Chaudhuri & John McLaren, 2007. "Trade Shocks and Labor Adjustment: Theory," NBER Working Papers 13463, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General
    • J7 - Labor and Demographic Economics - - Labor Discrimination

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