Chaudhuri Shubham author Columbia University. Economics Cameron Stephen author Columbia University. International and Public Affairs McLaren John author Columbia University. Economics Columbia University. Economics contributor originator text Working papers New York Department of Economics, Columbia University 2002 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. Economic theory 0102-53 http://hdl.handle.net/10022/AC:P:364 English NNC NNC 2011-03-22 12:22:12 -0400 2011-06-21 12:13:40 -0400 3168 eng