Terms‐of‐Trade Shocks, Labor‐Market Adjustment, and Safeguard Measures

James D. Gaisford and Lawrence Leger

Review of International Economics, 2000, vol. 8, issue 1, 100-112

Abstract: This paper explores a simple model of labor‐market adjustment where intersectoral transfer in response to terms‐of‐trade shocks involves both sector‐specific skill acquisition and workplace disruption. Externalities arise because the marginal migrant does not consider the congestion costs imposed on intramarginal migrants or the disruption costs imposed on the incumbent workers in both sectors. While these externalities give rise to a case for temporary adjustment assistance, the analysis does not support the use of trade measures such as tariffs.

Date: 2000
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