Trade Dynamics with Sector-Specific Human Capital

Hémous, David, Adam Guren and Morten Olsen
Authors registered in the RePEc Author Service: David Hemous

No 9835, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper develops a dynamic Heckscher Ohlin Samuelson model with sector-specific human capital and overlapping generations to characterize the dynamics and welfare implications of gradual labor market adjustment to trade. Our model is tractable enough to yield sharp analytic results, that complement and clarify an emerging empirical literature on labor market adjustment to trade. Existing generations that have accumulated specific human capital in one sector can switch sectors when the economy is hit by a trade shock. Nonetheless, the shock induces few workers to switch, generating a protracted adjustment that operates largely through the entry of new generations. This results in wages being tied to the sector of employment in the short-run but to the skill type in the long-run. Relative to a world with general human capital, welfare is improved for the skill group whose type-intensive sector shrinks. We extend the model to include physical capital and show that the transition is longer when capital is mobile. We also introduce nonpecuniary sector preferences and show that larger gross flows are associated with a longer transition.

Keywords: Sector-specific human capital; Trade shock; Transitional dynamics; Worker mobility (search for similar items in EconPapers)
JEL-codes: E24 F11 F16 J24 (search for similar items in EconPapers)
Date: 2014-02
New Economics Papers: this item is included in nep-dge, nep-hrm, nep-int and nep-mac
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Journal Article: Trade dynamics with sector-specific human capital (2015)
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