Trade Shocks and Labor Adjustment: A Structural Empirical Approach

Erhan Artuc, Shubham Chaudhuri and John McLaren

American Economic Review, 2010, vol. 100, issue 3, 1008-45

Abstract: The welfare effects of trade shocks turn on the nature and magnitude of the costs workers face in moving between sectors. Using an Euler-type equilibrium condition derived from a rational expectations model of dynamic labor adjustment, we estimate the mean and variance of workers' switching costs from the US CPS. We estimate high values of both parameters, implying slow adjustment of the economy and sharp movements in wages in response to trade shocks. However, import-competing workers can still benefit from tariff removal; liberalization lowers their wages in the short and long run but raises their option value.(JEL E24, F13, F16)

JEL-codes: E24 F13 F16 (search for similar items in EconPapers)
Date: 2010
Note: DOI: 10.1257/aer.100.3.1008
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Citations: View citations in EconPapers (352)

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Working Paper: Trade Shocks and Labor Adjustment: A Structural Empirical Approach (2007)
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