Patterns of Labor Market Adjustment to Trade Shocks with Imperfect Capital Mobility
This paper explores how different investment frictions affect the patterns of responses of labor markets to tariff cuts. To investigate these patterns, this paper formulates a multi-sector dynamic model featuring capital and labor adjustment costs...
| Main Authors: | , , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2021
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/undefined/878751631627450596/Patterns-of-Labor-Market-Adjustment-to-Trade-Shocks-with-Imperfect-Capital-Mobility http://hdl.handle.net/10986/36283 |
| Summary: | This paper explores how different
investment frictions affect the patterns of responses of
labor markets to tariff cuts. To investigate these patterns,
this paper formulates a multi-sector dynamic model featuring
capital and labor adjustment costs that is fitted to
Argentine data. Counterfactual simulations of a tariff
decline in the textile sector are used to show that capital
adjustment can create long-run responses of real wages that
are larger than the short-run responses. This happens as
textile firms disinvest during the transition. This paper
also shows that the reduction of tariffs on capital inputs
boosts investment and real wages across sectors. This paper
assesses the nature of capital adjustment costs, including
fixed, convex, and irreversibility costs in determining
these patterns of labor market responses to trade reforms. |
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