Globalization and Labor Market Dynamics

Historically, the trade research field has usually ignored dynamic adjustment of workers, but a recent wave of work has developed a rich set of theoretical and empirical tools to analyze this. Empirical approaches have ranged from reduced-form regressions to structural estimation of underlying parameters, which is necessary to get at welfare effects. A major distinction is between models that do and do not allow for unobserved heterogeneity across workers; these models are useful for different purposes. Consistent findings across methods and countries are that costs of switching sectors and occupations are high, and that both switching costs and option value are crucial in computing welfare effects of globalization for workers