TDPE Presents: Kerem Cosar

 Adjusting to Trade Liberalization:  Reallocation and Labor Market Policies Kerem Cosar studies international trade and macroeconomics. In his recent research, he applies the tools of macroeconomics, such as dynamic programming and computational solutions, to questions arising in international trade. His research contributes to the analysis of the short run effects of increased international competition. He received his Ph.D. in 2010 from the Pennsylvania State University. Labor market responses to trade liberalization typically exhibit three features: slow net absorption of labor by export-oriented sectors, large reallocation costs for displaced workers, and a disproportionate adjustment burden for older workers. To explain these features and to analyze alternative policy responses, I develop model with overlapping generations, labor market search and matching, and sector-specific human capital accumulated through learning-by-doing. The model is calibrated to Brazilian data in order to study the dynamics of an economy in transition after trade liberalization. The calibrated model shows that human capital plays the biggest role in generating the observed slow adjustment to reforms. A targeted employment subsidy that rewards mobility not only improves the distribution of income but also enhances efficiency gains from trade by facilitating faster formation of necessary skills during the adjustment period.  The paper contributes to a better understanding of trade-induced transitional dynamics and the labor market policies aimed at compensating the losers from trade.