Download or read book Adjustment Costs, Trade Policy, and Labor Market Dynamics written by David A. Riker and published by . This book was released on 2021 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a model of the path of wages and employment in an industry before and after a significant reduction in tariffs on industry imports. The model includes forwardlooking workers who face significant adjustment costs of moving to another industry. We apply the model to recent data for the U.S. furniture industry in a series of simulations of hypothetical tariff reductions. The model suggests that immediately and unexpectedly eliminating the 6.6% average tariff rate on U.S. furniture imports would reduce domestic employment in the industry by 3.0% in the first two years and by a cumulative 6.3% after five years. Wages would immediately decline by 4.5% and then recover gradually over several years. In contrast, staging the tariff reduction would result in less costly labor adjustment, and wage premia in anticipation of the tariff reduction would partly compensate the workers for upcoming wage losses and adjustment costs. We extend the model to incorporate uncertainty about total expenditure on the domestic and imported products.