Impeerfect Intersectoral Labour Mobility and Welfare in International Trade

Abstract

This paper sets out a general`costs-of-employment' model by which to analyse the impediments to relocation faced by workers who must choose between industrial sectors in response to a terms of trade shock. Different types of employment cost generate different types of relocation cost. The theoretical literature on intersectoral labour relocation in international trade models is reviewed in the light of this model with various special cases analysed in detail. Special attention is given to the comparison between equilibrium and socially efficient patterns of migration. Different specifications of relocation costs lead to very different welfare effects and policy prescriptions.