Artuc, ErhanChaudhuri, ShubhamMcLaren, John2014-12-032014-12-032014-11https://hdl.handle.net/10986/20627This 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.en-USCC BY 3.0 IGOADJUSTMENT ASSISTANCEADJUSTMENT COSTADJUSTMENT COSTSADJUSTMENT PROCESSAFFECTED WORKERSAVERAGE WAGESBENCHMARKCETERIS PARIBUSCOMPENSATING WAGE DIFFERENTIALSCONSUMER PRICE INDEXDEMAND CURVESDEVELOPING COUNTRIESDEVELOPMENT POLICYDISCOUNTED VALUEDISTRIBUTION OF INCOMEDOMESTIC PRICEDOWNWARD PRESSUREECONOMIC ACTIVITYECONOMIC INEQUALITYECONOMIC THEORYECONOMICSELASTICITYELASTICITY OF LABOR SUPPLYELASTICITY OF SUBSTITUTIONEMPLOYMENT EFFECTSEMPLOYMENT LEVELSEMPLOYMENT RESEARCHEQUILIBRIUMEQUILIBRIUM UNEMPLOYMENTEXPECTED VALUEEXPECTED WAGEEXPORT MARKETSEXPORT SECTOREXPORT SUBSIDYEXPORTSFEDERAL RESERVE SYSTEMFREE TRADEFREE TRADE AGREEMENTGDPGENERAL EQUILIBRIUMGLOBALIZATIONHIGH WAGESHUMAN CAPITALIMPORT COMPETITIONIMPORTSINDUSTRY WAGEINTERNATIONAL ECONOMICSINTERNATIONAL TRADEJOB SEPARATIONJOBSLABOR ADJUSTMENTLABOR ALLOCATIONLABOR ALLOCATIONSLABOR DEMANDLABOR FORCELABOR MARKETLABOR MARKET RIGIDITIESLABOR MARKETSLABOR MOBILITYLABOR REALLOCATIONLABOR SUPPLIESLABOURLOCAL LABOR MARKETLOCAL LABOR MARKETSMANUFACTURING INDUSTRIESMANUFACTURING WAGEMANUFACTURING WAGESMARGINAL COSTMARGINAL PRODUCTSMARGINAL VALUENATIONAL INCOMENEOCLASSICAL MODELSOCCUPATIONOCCUPATIONAL MOBILITYOPEN ECONOMYOPTIMAL ALLOCATIONOPTIMIZATIONPOLITICAL ECONOMYPOLITICAL ECONOMY OF TRADEPREFERENTIAL AGREEMENTPRESENT VALUEPRODUCT PRICESPRODUCTION FUNCTIONPRODUCTION FUNCTIONSPROTECTIONISMREAL WAGEREAL WAGESRENTSRISK NEUTRALTARIFF BINDINGSTARIFF PROTECTIONTARIFF REDUCTIONTARIFF REDUCTIONSTERMS OF TRADETRADE ADJUSTMENTTRADE ADJUSTMENT ASSISTANCETRADE BLOCKTRADE BLOCKSTRADE DIVERSIONTRADE LIBERALIZATIONTRADE MODELTRADE MODELSTRADE POLICYTRADE REGIMETRAINING COSTSUNEMPLOYMENTURUGUAY ROUNDWAGE DIFFERENTIALWAGE DIFFERENTIALSWAGE EFFECTSWAGE INCREASEWAGE INEQUALITYWAGE LEVELSWAGE LOSSWAGESWORKERWORKERSWTO10.1596/1813-9450-7089