Sticky Feet : How Labor Market Frictions Shape the Impact of International Trade on Jobs and Wages
This report analyzes the paths by which developing country labor markets adjust to permanent trade-related shocks. Trade shocks can bring about reallocation of labor between industries, but the presence of labor mobility costs implies economy-wide...
| Main Authors: | , , , |
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| Language: | English en_US |
| Published: |
Washington, DC: World Bank
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2014/06/19705585/sticky-feet-labor-market-frictions-shape-impact-international-trade-jobs-wages http://hdl.handle.net/10986/18777 |
| Summary: | This report analyzes the paths by which
developing country labor markets adjust to permanent
trade-related shocks. Trade shocks can bring about
reallocation of labor between industries, but the presence
of labor mobility costs implies economy-wide losses because
they extend the period of economic adjustment. This report
focuses primarily on the adjustment costs faced by workers
after a trade shock, because of magnitude and welfare
implications and policy relevance. From a policy viewpoint,
understanding the relative magnitudes of labor mobility and
adjustment costs can help policymakers design trade policies
that are consistent with employment objectives, can be
complemented by labor policies, or support programs to
facilitate labor transitions, or both. To complement and
validate the analysis based on structural choice models, the
study designed a distinct empirical approach using
reduced-form econometric estimation strategies. This
approach examines the impact of structural reforms and
worker displacement on labor market outcomes. This makes it
possible to estimate the time required to adjust to a
trade-related shock, but does not assume the rigid
underlying relationship inherent in structural models. This
report is organized as follows: chapter one gives
introduction. Chapter two presents evidence from the
literature on the relative magnitude of labor adjustment
costs borne by workers and by firms. Chapter three presents
a new database of country-level labor mobility cost
estimates for both developing and developed economies.
Chapter four showcases country case studies in which labor
mobility costs vary by industry, firm size, and worker type
(for example, informal versus. formal). Chapter five
analyzes the impact of structural reforms on aggregate labor
market outcomes across countries and the effect of worker
displacement due to plant closings on the employment
outcomes of individual workers in Mexico. Chapter six
concludes with a summary of the main findings about the
labor adjustment costs associated with trade-related shocks
and a discussion of policy responses internationally. |
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