Labour Market Effects of International Trade When Mobility is Costly

Abstract

I build and estimate a dynamic structural model of sectoral choices with heterogeneous workers accumulating imperfectly transferable human capital. Utility costs provide an additional barrier to mobility. Estimated by Simulated Minimum Distance on administrative data covering the population of Danish workers, costs are found to be in the range of 10% to 19% of average annual wages. Removing permanent unobserved heterogeneity increases the utility costs by an order of magnitude. I show that both the imperfect transferability of human capital and the utility costs are important in explaining the slow adjustment of the labour market following shocks to the economy. This article is protected by copyright. All rights reserved.