Some Simple Analytics of Trade and Labor Mobility

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.

Bibliographic Details

Main Authors:	Artuc, Erhan, Chaudhuri, Shubham, McLaren, John
Language:	English en_US
Published:	World Bank Group, Washington, DC 2014-11
Subjects:	ADJUSTMENT ASSISTANCE, ADJUSTMENT COST, ADJUSTMENT COSTS, ADJUSTMENT PROCESS, AFFECTED WORKERS, AVERAGE WAGES, BENCHMARK, CETERIS PARIBUS, COMPENSATING WAGE DIFFERENTIALS, CONSUMER PRICE INDEX, DEMAND CURVES, DEVELOPING COUNTRIES, DEVELOPMENT POLICY, DISCOUNTED VALUE, DISTRIBUTION OF INCOME, DOMESTIC PRICE, DOWNWARD PRESSURE, ECONOMIC ACTIVITY, ECONOMIC INEQUALITY, ECONOMIC THEORY, ECONOMICS, ELASTICITY, ELASTICITY OF LABOR SUPPLY, ELASTICITY OF SUBSTITUTION, EMPLOYMENT EFFECTS, EMPLOYMENT LEVELS, EMPLOYMENT RESEARCH, EQUILIBRIUM, EQUILIBRIUM UNEMPLOYMENT, EXPECTED VALUE, EXPECTED WAGE, EXPORT MARKETS, EXPORT SECTOR, EXPORT SUBSIDY, EXPORTS, FEDERAL RESERVE SYSTEM, FREE TRADE, FREE TRADE AGREEMENT, GDP, GENERAL EQUILIBRIUM, GLOBALIZATION, HIGH WAGES, HUMAN CAPITAL, IMPORT COMPETITION, IMPORTS, INDUSTRY WAGE, INTERNATIONAL ECONOMICS, INTERNATIONAL TRADE, JOB SEPARATION, JOBS, LABOR ADJUSTMENT, LABOR ALLOCATION, LABOR ALLOCATIONS, LABOR DEMAND, LABOR FORCE, LABOR MARKET, LABOR MARKET RIGIDITIES, LABOR MARKETS, LABOR MOBILITY, LABOR REALLOCATION, LABOR SUPPLIES, LABOUR, LOCAL LABOR MARKET, LOCAL LABOR MARKETS, MANUFACTURING INDUSTRIES, MANUFACTURING WAGE, MANUFACTURING WAGES, MARGINAL COST, MARGINAL PRODUCTS, MARGINAL VALUE, NATIONAL INCOME, NEOCLASSICAL MODELS, OCCUPATION, OCCUPATIONAL MOBILITY, OPEN ECONOMY, OPTIMAL ALLOCATION, OPTIMIZATION, POLITICAL ECONOMY, POLITICAL ECONOMY OF TRADE, PREFERENTIAL AGREEMENT, PRESENT VALUE, PRODUCT PRICES, PRODUCTION FUNCTION, PRODUCTION FUNCTIONS, PROTECTIONISM, REAL WAGE, REAL WAGES, RENTS, RISK NEUTRAL, TARIFF BINDINGS, TARIFF PROTECTION, TARIFF REDUCTION, TARIFF REDUCTIONS, TERMS OF TRADE, TRADE ADJUSTMENT, TRADE ADJUSTMENT ASSISTANCE, TRADE BLOCK, TRADE BLOCKS, TRADE DIVERSION, TRADE LIBERALIZATION, TRADE MODEL, TRADE MODELS, TRADE POLICY, TRADE REGIME, TRAINING COSTS, UNEMPLOYMENT, URUGUAY ROUND, WAGE DIFFERENTIAL, WAGE DIFFERENTIALS, WAGE EFFECTS, WAGE INCREASE, WAGE INEQUALITY, WAGE LEVELS, WAGE LOSS, WAGES, WORKER, WORKERS, WTO,
Online Access:	http://documents.worldbank.org/curated/en/2014/11/20349473/some-simple-analytics-trade-labor-mobility https://hdl.handle.net/10986/20627
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