Some Simple Analytics of Trade and Labor Mobility

59 Pages Posted: 20 Apr 2016 Last revised: 27 Apr 2018

See all articles by Erhan Artuc

Erhan Artuc

World Bank; World Bank - Development Research Group (DECRG)

Shubham Chaudhuri

Columbia University, Graduate School of Arts and Sciences, Department of Economics; World Bank - East Asia and Pacific Region

John McLaren

University of Virginia; NBER

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Date Written: November 1, 2014

Abstract

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.

Keywords: International Trade and Trade Rules, Labor Markets, Rules of Origin, Trade Policy, Trade and Multilateral Issues

Suggested Citation

Artuc, Erhan and Chaudhuri, Shubham and McLaren, John, Some Simple Analytics of Trade and Labor Mobility (November 1, 2014). World Bank Policy Research Working Paper No. 7089. Available at SSRN: https://ssrn.com/abstract=2519304

Erhan Artuc

World Bank ( email )

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Shubham Chaudhuri

Columbia University, Graduate School of Arts and Sciences, Department of Economics ( email )

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John McLaren (Contact Author)

University of Virginia ( email )

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