Evaluating Labour Adjustment Costs from Trade Shocks: Illustrations for the U.S. Economy Using an Applied General Equilibrium Model With Transactions / Ramon L. Clarete, Irene Trela, John Whalley.

Format:

Book

Author/Creator:

Clarete, Ramon L.

Contributor:

National Bureau of Economic Research.

Trela, Irene.

Whalley, John.

Series:

Working Paper Series (National Bureau of Economic Research) no. w4628.

NBER working paper series no. w4628

Language:

English

Subjects (All):

Economic history.

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Evaluating Labour Adjustment Costs from Trade Shocks

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1994.

Cambridge, Massachusetts : National Bureau of Economic Research, 1994.

Summary:

This paper presents a general equilibrium approach to calculating labour adjustment costs induced by trade policy changes or external sector shocks, which we illustrate by analyzing the adjustment consequences of eliminating quotas and tariffs on U.S. imports. In our approach, factor adjustments in the presence of transactions costs are endogenously determined within the equilibrium structure. The conventional way of calculating such labour adjustment costs is to use full equilibrium models which exclude adjustment costs, and apply exogenous estimates of duration of unemployment to implied intersectoral labour reallocations. By using an equilibrium model in which adjustment costs are absent, the conventional approach tends to overstate the amount of labour that moves to other sectors and hence introduces an upward bias to estimates of adjustment costs. As well, such an approach tends to ignore the impact on intersectoral wage rates. Our results suggest that concerns over adjustment problems should focus as much on the consequences of adjustment costs in impeding factor mobility, as on the magnitude of the adjustment costs themselves. Compared to the redistributive effects they induce by inhibiting labour movement in response to policy or other changes, these costs may be small.

Notes:

Print version record

January 1994.