Trade shocks and labor adjustment
Subtitle: theory
By: Stephen Cameron, Shubham Chaudhuri, John McLaren.
Contributors: Chaudhuri, Shubham.; McLaren, John.; National Bureau of Economic Research.
Series: NBER working paper series -- no. 13463.; Working paper series (National Bureau of Economic Research) -- working paper no. 13463.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 45
Subjects: Labor market -- Econometric models; Commercial policy
Description: "We construct a dynamic, stochastic rational expectations model of labor reallocation within a trade model that is designed so that its key parameters can be estimated for trade policy analysis.  A key feature is the presence of time-varying idiosyncratic moving costs faced by workers.  As a consequence of these shocks: (i) Gross flows exceed net flows (an important feature of empirical labor movements); (ii) the economy features gradual and anticipatory adjustment to aggregate shocks; (iii) wage differentials across locations or industries can persist in the steady state; and (iv) the normative implications of policy can be very different from a model without idiosyncratic shocks, even when the aggregate behaviour of both models is similar.  It is shown that the equilibrium solves a particular planner's problem, thus facilitating analytical results, econometric estimation, and simulation of the model for policy analysis"--National Bureau of Economic Research web site.
Notes: "October 2007"

Includes bibliographical references (p. 42-45).

Also available in PDF from the NBER World Wide Web site (www.nber.org).