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Some simple analytics of trade and labor mobility (English)

This paper studies a simple, tractable model of labor adjustment in a trade model that allows researchers to analyze the economy's dynamic response to trade liberalization. Since it is a neoclassical market-clearing model, duality techniques can be employed 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 induces anticipatory flight from the liberalizing sector, driving up wages there temporarily and giving workers remaining there what this paper calls "anticipation rents." By this process, 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, the paper identifies many pitfalls to conventional methods of empirical study of trade liberalization that are based on static models.

Details

  • Author

    Artuc,Erhan, Chaudhuri,Shubham, Mclaren,John Edward

  • Document Date

    2014/11/01

  • Document Type

    Policy Research Working Paper

  • Report Number

    WPS7089

  • Volume No

    1

  • Total Volume(s)

    1

  • Country

    World, Western Balkans

  • Region

    The World Region,

  • Disclosure Date

    2014/11/01

  • Disclosure Status

    Disclosed

  • Doc Name

    Some simple analytics of trade and labor mobility

  • Keywords

    steady state;Trade & International Integration;elasticity of labor supply;impact of trade liberalization;terms of trade shock;labor demand curve;increase in labor;allocation of labor;number of workers;prima facie evidence;gains and losses;movement of labor;labor market adjustment;movement of worker;marginal adjustment cost;idiosyncratic shock;domestic price;empirical work;trade model;transition path;labor mobility;world price;labor allocation;high wage;real wage;option value;envelope theorem;Trade Policies;relative price;Trade Policy;optimization problem;trade theory;dynamic adjustment;relative supply;export good;industry wage;dynamic model;allocation rule;neoclassical model;wage differential;compensation policy;idiosyncratic component;supply increase;neoclassical market;dynamic response;marginal value;consumption expenditure;inequality result;job separation;import good;ceteris paribus;relocation cost;optimal choice;empirical study;development policy;discount factor;external shock;rational expectation;open access;risk neutral;dynamic programming;living condition;simple model;comparative static;gross flows;product price;capital adjustment;retrain cost;future employment;mobility decision;perfect substitute;wage loss;uruguay round;wage changes;export subsidies;increasing function;brazilian worker;labor use;take time;open economy;labor reallocation;adjustment process;brazilian data;export subsidy;blue-collar worker;domestic good;stochastic process;nominal wage;policy simulation;worker mobility;empirical evidence;occupational mobility;export sector;present value;wage level;relative wage;price index;empirical analysis;sectoral employment;equilibrium value;basic model;lifetime welfare;exogenous rate;downward pressure;empirical support;geographic region;duality theory;expected value;aggregate output;discount value;numerical simulation;aggregate welfare;welfare change;initial value;optimal allocation;

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Citation

Artuc,Erhan Chaudhuri,Shubham Mclaren,John Edward

Some simple analytics of trade and labor mobility (English). Policy Research working paper,no. WPS 7089,Paper is funded by the Strategic Research Program (SRP) Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/693931468171847997/Some-simple-analytics-of-trade-and-labor-mobility