Some Simple Analytics of Trade and Labor Mobility

Shubham Chaudhuri and John McLaren

No 13464, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: F16 F23 J60 J7 (search for similar items in EconPapers)
Date: 2007-10
New Economics Papers: this item is included in nep-int and nep-lab
Note: ITI LS
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Citations: View citations in EconPapers (12)

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