TY - JOUR

T1 - Trade dynamics with sector-specific human capital

AU - Guren, Adam

AU - Hémous, David

AU - Olsen, Morten

PY - 2015/1/1

Y1 - 2015/1/1

N2 - This paper develops a dynamic Heckscher Ohlin Samuelson model with sector-specific human capital and overlapping generations to characterize the dynamics and welfare implications of gradual labor market adjustment to trade. Our model is tractable enough to yield sharp analytic results, that complement and clarify an emerging empirical literature on labor market adjustment to trade. Existing generations that have accumulated specific human capital in one sector can switch sectors when the economy is hit by a trade shock. Nonetheless, the shock induces few workers to switch, generating a protracted adjustment that operates largely through the entry of new generations. This results in wages being tied to the sector of employment in the short-run but to the skill type in the long-run. Relative to a world with general human capital, welfare is improved for the skill group whose type-intensive sector shrinks. We extend the model to include physical capital and show that the transition is longer when capital is mobile. We also introduce nonpecuniary sector preferences and show that larger gross flows are associated with a longer transition.

AB - This paper develops a dynamic Heckscher Ohlin Samuelson model with sector-specific human capital and overlapping generations to characterize the dynamics and welfare implications of gradual labor market adjustment to trade. Our model is tractable enough to yield sharp analytic results, that complement and clarify an emerging empirical literature on labor market adjustment to trade. Existing generations that have accumulated specific human capital in one sector can switch sectors when the economy is hit by a trade shock. Nonetheless, the shock induces few workers to switch, generating a protracted adjustment that operates largely through the entry of new generations. This results in wages being tied to the sector of employment in the short-run but to the skill type in the long-run. Relative to a world with general human capital, welfare is improved for the skill group whose type-intensive sector shrinks. We extend the model to include physical capital and show that the transition is longer when capital is mobile. We also introduce nonpecuniary sector preferences and show that larger gross flows are associated with a longer transition.

KW - Sector-specific human capital

KW - Trade shock

KW - Transitional dynamics

KW - Worker mobility

KW - E24

KW - F11

KW - F16

KW - J24

U2 - 10.1016/j.jinteco.2015.04.003

DO - 10.1016/j.jinteco.2015.04.003

M3 - Journal article

AN - SCOPUS:84941259238

VL - 97

SP - 126

EP - 147

JO - Journal of International Economics

JF - Journal of International Economics

SN - 0022-1996

IS - 1

ER -