GEP Research Paper 01/04
Globalization, Employment and Income: Analyzing the Adjustment Process
Carl Davidson and Steve Matusz
This paper was subsequently published in Trade, Investment and Labour: Proceedings of IEA Conference on Globalisation and Labour Markets, D. Greenaway, R. Upward and K. Wakelin (eds.) Palgrave (2002).
Abstract
In this paper we construct and analyze a general equilibrium trade model that explicitly accounts for the dynamic aspects of labor market adjustment that occur when trade is liberalized. We show how empirically observable parameters of the labor market determine the rate at which labor is released from the contracting sector and is absorbed into the expanding sector and therefore influence the magnitude and extent of the losses associated with trade reform. We also show that the economy may overshoot the new steady state during adjustment and that the length of the adjustment process is likely to be non-trivial.
Issued in May 2001.
This paper is available in PDF format .