Publication: A Mapping of Labor Mobility Costs in the Developing World
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Published
2014-11-06
ISSN
0022-1996
Date
2014-12-16
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Abstract
Estimates of labor mobility costs are needed to assess the responses of employment and wages to trade shocks when factor adjustment is costly. Available methods to estimate those costs rely on panel data, which are seldom available in developing countries. We propose a method to estimate mobility costs using readily obtainable data worldwide. Our estimator matches the changes in observed sectoral employment allocations with the predicted allocations from a model of costly labor adjustment. We estimate a world map of labor mobility costs and we use those estimates to explore the response of labor markets to trade policy.
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To investigate these patterns, this paper formulates a multi-sector dynamic model featuring capital and labor adjustment costs that is fitted to Argentine data. Counterfactual simulations of a tariff decline in the textile sector are used to show that capital adjustment can create long-run responses of real wages that are larger than the short-run responses. This happens as textile firms disinvest during the transition. This paper also shows that the reduction of tariffs on capital inputs boosts investment and real wages across sectors. 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