Cameron, Stephen. <br/><br/>
Trade Shocks and Labor Adjustment:  Theory / 
Stephen Cameron, Shubham Chaudhuri, John McLaren. 
 - Cambridge, Mass.  National Bureau of Economic Research  2007. 
 - 1 online resource:  illustrations (black and white); 
 - NBER working paper series  no. w13463 .
 - Working Paper Series (National Bureau of Economic Research)  no. w13463. .
<br/><br/> October 2007. 
<br/><br/> We construct a dynamic, stochastic rational expectations model of labor reallocation within a trade model that is designed so that its key parameters can be estimated for trade policy analysis. A key feature is the presence of time-varying idiosyncratic moving costs faced by workers.  As a consequence of these shocks: (i) Gross flows exceed net flows (an important feature of empirical labor movements); (ii) the economy features gradual and anticipatory adjustment to aggregate shocks; (iii) wage differentials across locations or industries can persist in the steady state; and (iv) the normative implications of policy can be very different from a model without idiosyncratic shocks, even when the aggregate behaviour of both models is similar. It is shown that the equilibrium solves a particular planner's problem, thus facilitating analytical results, econometric estimation, and simulation of the model for policy analysis. 
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