TY  - JOUR
AU  - Cameron,Stephen
AU  - Chaudhuri,Shubham
AU  - McLaren,John
TI  - Trade Shocks and Labor Adjustment: Theory
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13463
PY  - 2007
Y2  - October 2007
UR  - http://www.nber.org/papers/w13463
L1  - http://www.nber.org/papers/w13463.pdf
N1  - Author contact info:
Stephen Cameron
School of International and Public Affairs
Columbia University
420 West 118th Street
New York, NY 10027
E-Mail: sc337@columbia.edu

Shubham Chaudhuri
The World Bank
1818 H Street, NW MS#MC8-808
Washington, DC 20433 USA
E-Mail: schaudhuri@worldbank.org

John McLaren
Department of Economics
University of Virginia
P.O. Box 400182
Charlottesville, VA  22904-4182
Tel: 434/924-3994
Fax: 434/982-2904
E-Mail: jmclaren@virginia.edu
AB  - 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.
ER  -