Some Simple Analytics of Trade and Labor Mobility
This paper studies a simple, tractable model of labor adjustment in a trade model that allows researchers to analyze the economy's dynamic response to trade liberalization. Since it is a neoclassical market-clearing model, duality techniques c...
| Main Authors: | , , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank Group, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2014/11/20349473/some-simple-analytics-trade-labor-mobility http://hdl.handle.net/10986/20627 |
| Summary: | This paper studies a simple, tractable
model of labor adjustment in a trade model that allows
researchers to analyze the economy's dynamic response
to trade liberalization. Since it is a neoclassical
market-clearing model, duality techniques can be employed 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 induces
anticipatory flight from the liberalizing sector, driving up
wages there temporarily and giving workers remaining there
what this paper calls "anticipation rents." By
this process, 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, the paper identifies many pitfalls to
conventional methods of empirical study of trade
liberalization that are based on static models. |
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