A Survey of Empirical Models of Labor Transitions Following Trade Liberalization

Author(s)

David Riker, William Swanson

In this article, we survey prominent recent empirical studies that explain why labor markets adjust slowly after a country reduces its barriers to trade. The models that we cover are technically complex: they simulate the economy-wide transitions that result from the employment decisions of individual workers who face costs of moving between sectors, loss of the usefulness of their sector-specific experience, and many types of uncertainty. The adjustment costs in the models vary across types of workers, and the speed of adjustment varies across the countries studied and the modeling assumptions adopted. We present these technical models in a relatively nontechnical way. We summarize the similarities and differences in the assumptions and findings of the different economic studies.