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RESEARCH AND ANALYSIS: WORKING PAPERS

Trade Liberalization and Labor Market Dynamics

I study trade-induced transitional dynamics by estimating a structural dynamic equilibrium model of the Brazilian labor market.

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The model features a multi-sector economy with overlapping generations, heterogeneous workers, endogenous accumulation of sector-specic experience and costly switching of sectors. The model's estimates yield median costs of mobility ranging from 1.4 to 2.7 times annual average wages, but a high dispersion across the population. In addition, sectorspecic experience is imperfectly transferable across sectors, leading to additional barriers to mobility. Using the estimated model for counterfactual trade liberalization experiments, the main ndings are: (1) there is a large labor market response following trade liberalization but the transition may take several years; (2) potential aggregate welfare gains are signicantly mitigated due to the delayed adjustment; (3) trade-induced welfare eects depend on initial sector of employment and on worker demographics. The experiments also highlight the sensitivity of the transitional dynamics with respect to assumptions regarding the mobility of capital.

No: ERSD-2011-19

Author:

Rafael Dix-Carneiro — University of Maryland

Manuscript date: December 2011

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This is a working paper, and hence it represents research in progress. This paper represents the opinions of the author, and is the product of professional research. It is not meant to represent the position or opinions of the WTO or its Members, nor the official position of any staff members. Any errors are the fault of the author. Copies of working papers can be requested from the divisional secretariat by writing to: Economic Research and Statistics Division, World Trade Organization, Rue de Lausanne 154, CH 1211 Geneva 21, Switzerland. Please request papers by number and title.

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