Working papers:
Mobility costs and the dynamics of labor market adjustment to external shocks: Theory
Shubham Chaudhuri; Stephen Cameron; John McLaren
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- Title:
- Mobility costs and the dynamics of labor market adjustment to external shocks: Theory
- Author(s):
-
Chaudhuri, Shubham
Cameron, Stephen
McLaren, John - Date:
- 2002
- Type:
- Working papers
- Department:
- Economics
- Permanent URL:
- http://hdl.handle.net/10022/AC:P:364
- Series:
- Department of Economics Discussion Papers
- Part Number:
- 0102-53
- Publisher:
- Department of Economics, Columbia University
- Publisher Location:
- New York
- Abstract:
- We construct a dynamic, stochastic rational expectations model of labor reallocation 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 behavior of both models is similar. It is shown that the solution to a particular planner's problem yields a competitive equilibrium, thus facilitating the analysis and simulation of the model for policy purposes.
- Subject(s):
- Economic theory
- Item views:
- 180