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Labor Markets and Kaleidoscopic Comparative Advantage

  • Daniel A. Traça

This paper addresses the labor market implications of an increase in openness and foreign competition. It develops a model where industry-specific productivity shocks create uncertainty, producing an environment of kaleidoscopic comparative advantage (Bhagwati, 1998). The key assumption is that risk markets are imperfect, as wage-contracts are subject to uninsurable bankruptcy risk. In this context, the paper analyzes the consequences for wage levels, wage volatility, job-instability and income distribution, of the openness of previously non-traded industries to the forces of international trade and foreign competition.

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File URL: http://www.bportugal.pt/en-US/BdP%20Publications%20Research/WP200004.pdf
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Paper provided by Banco de Portugal, Economics and Research Department in its series Working Papers with number w200004.

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Date of creation: 2000
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Handle: RePEc:ptu:wpaper:w200004
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