Terms of trade risk with partial labor mobility |
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Authors: | Benjamin N Dennis |
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Institution: | a Department of Economics, University of the Pacific, 3601 Pacific Avenue, Stockton, CA, 95211, USA b Department of Economics, Dalhousie University, Halifax, NS, Canada, B3H 3J5 |
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Abstract: | We examine the welfare consequences of terms-of-trade risk in a small open economy in which it is costly for workers to move between sectors. Relocation costs lead to partial labor mobility, sectoral wage gaps and income risk exceeding that of an economy in which relocation is costless. Using observed wage differentials and standard values for volatility and preferences, we find that the welfare cost of partial labor mobility alone is unlikely to be very large, even in the absence of self-insurance arrangements. In addition, modest consumption substitution elasticities significantly reduce these welfare costs. |
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Keywords: | F41 D61 |
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