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Delay and dynamics in labor market adjustment: Simulation results

Erhan Artuc; Shubham Chaudhuri; John McLaren

Title:
Delay and dynamics in labor market adjustment: Simulation results
Author(s):
Artuc, Erhan
Chaudhuri, Shubham
McLaren, John
Date:
Type:
Working papers
Department:
Economics
Permanent URL:
Series:
Department of Economics Discussion Papers
Part Number:
0304-07
Publisher:
Department of Economics, Columbia University
Publisher Location:
New York
Abstract:
We study numerical simulations of a standard trade model with labor mobility costs added, modeled in such a way as to generate gross flows in excess of net flows. We find that adjustment to a trade shock can take a long time with plausible values of parameter values. In our base case, for the economy to move 95% of the distance to the new steady state takes well over a decade. Gross flows have a large effect on this rate of adjustment and on the normative effects of trade. Announcing and delaying the liberalization can build a constituency for free trade, but it can also destroy one. We study the conditions under which these two different outcomes occur.
Subject(s):
Economics, Labor
Item views:
216
Metadata:
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